IRS Issues Proposed Regulations Under Code Section 457 Affecting Deferred Compensation Plans Of Tax-Exempt Organizations

The Internal Revenue Service recently issued proposed regulations under Section 457 of the Internal Revenue Code (the "Code") that prescribe rules regarding deferred compensation plans sponsored by state and local governments and tax-exempt organizations.  These regulations relate primarily to the taxes imposed (under Code Section 457(f)) on the organization at the time the individual's right to compensation vests, without regard to actual time of payment. 

The proposed regulations provide greater clarity in areas that were previously unclear, including what arrangements will be treated as a deferral of compensation, what constitutes a substantial risk of forfeiture (relating to when a participant's rights are considered vested), and the requirements for certain plans to fall outside the scope of Section 457.