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IRS Issues Notice Delaying 409A Reporting Requirements

As anticipated in our November 2006 Alert, the Internal Revenue Service has issued Notice 2006-100, which suspends the reporting and withholding requirements with respect to contributions to nonqualified deferred compensation plans under Section 409A for calendar year 2006.

A requirement that nontaxable deferrals be reported annually on Forms W-2 and 1099 was added by Section 409A, but has yet to be implemented. Notice 2006-100, attached hereto, postpones the obligation to report deferrals or contributions to a nonqualified deferred compensation plan that complies with the requirements of Section 409A. However, the Notice does require employers to report any amounts taxable under Section 409A and to apply the appropriate withholding. The Notice also provides some additional guidance regarding the valuation of amounts required to be included in income under Section 409A under account balance plans, defined benefit plans and stock plans. The amount to be included in connection with an account balance plan is essentially the vested account balance as of the end of the year, less amounts previously included in income. The amount to be included in connection with a defined benefit plan is the present value of the accrued  benefits which are reasonably ascertainable. The amount to be included in connection with a stock plan is to be determined on the basis of an assumption that the stock right was exercised on December 31, 2006.

This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations. For more information regarding Section 409A generally

If you have any specific questions about the application of Section 409A or Notice 2006-100, please contact Loeb attorney Marla Aspinwall.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.