This month, the California House of Representatives approved Assembly Bill 1173, which is intended to provide partial relief from the additional 20 percent state penalty tax for violations of the Internal Revenue Code Section 409A. Hopefully the bill will be approved by the Senate as the action is long overdue. Since Section 409A was adopted in 2004, the Department of the Treasury and the Internal Revenue Service have issued thousands of pages of guidance interpreting and applying the legislation. Despite the volume of regulatory guidance that has been issued under Section 409A, the application of this complicated legislation remains unclear.
Bill 1173 was inspired by a proposal that Loeb & Loeb partner Marla Aspinwall wrote and presented during the Sacramento Delegation of the State Bar Tax Section last February. Ms. Aspinwall has been a leader in building private sector support for the bill and this article examines the critical issues that it addresses.
This article was first printed in the May 31, 2013 edition of the Los Angeles Daily Journal. Permission for article reprint has been granted.
Marla Aspinwall is a Los Angeles-based tax partner at Loeb & Loeb LLP, where she heads the Compensation and Benefits department.