IRS Program For Correcting Underwithholding Of 409A Taxes On "Backdated Options"

The IRS has announced a voluntary correction program (the "Program") that employers can use to correct underwithholding of certain taxes incurred from the exercise in 2006 of "backdated options." The employer may pay the underwithheld federal taxes (described below) and the additional income and employment taxes on those tax payments (the additional tax payments are commonly referred to as a "gross-up") on behalf of the employees affected. If the employer completes the Program, then the employee and the employer are relieved of any penalties the IRS might impose for underwithholding of these taxes. Further, if the W-2 issued to the employee did not already reflect the effect of these taxes, then the employer also will not need to issue a corrected W-2. Participation in the Program does not reduce the amount of any tax owed.