Halloween Treat: IRS Issues Real Transition Relief Under Section 409A

On October 22, 2007, the IRS issued Notice 2007-86, which generally provides taxpayers with an additional year in which to take advantage of certain transition rules to bring nonqualified deferred compensation plans and arrangements into compliance with Section 409A of the Internal Revenue Code and the final regulations issued thereunder.

Section 409A covers a wide range of nonqualified deferred compensation plans and arrangements (including "traditional" cash deferred compensation plans and agreements governing stock options, bonuses and severance) and imposes a number of strict requirements on such plans and arrangements for participants to avoid premature taxation, an additional 20% federal income tax, and an interest-charge tax. Section 409A and its impact on various forms of nonqualified deferred compensation plans and arrangements are discussed in our prior Cooley Alerts.