On October 22 and 23, in response to a letter from a number of prestigious law firms across the country, including Bracewell & Giuliani LLP, the IRS issued Notice 2007-86 and Notice 2007-89, respectively, which provide meaningful relief to the documentary compliance requirements and reporting and wage withholding requirements of Internal Revenue Code Section 409A.
Notice 2007-86
The most significant relief provided by Notice 2007-86 is:
- Required compliance with the final regulations governing Code Section 409A begins January 1, 2009 (extended from January 1, 2008);
- Transition relief, which includes reasonable, good faith operational compliance with Code Section 409A, continues through December 31, 2008 (extended from December 31, 2007);
- Transition relief for making new payment elections is extended to December 31, 2008;
- Documentary compliance with Code Section 409A must be completed by December 31, 2008, which includes the designation of all forms and times of payment of deferred compensation subject to Code Section 409A (which previously was required by December 31, 2007); and
- IRS and Treasury will soon be issuing guidance on a Code Section 409A correction program.
Notice 2007-89
For deferred compensation plans and arrangements subject to Code Section 409A, Notice 2007-89 provides that, for the calendar year 2007:
- Employers or payors are not required to report amounts deferred and subject to Code Section 409A during 2007 in Box 12 of Form W-2 using Code Y, or in Box 15a of Form 1099 – MISC;
- Employers must treat amounts includible in gross income of an employee under Code Section 409A as wages for income tax withholding purposes and report such amounts as wages paid on Line 2 of Form 941, and Box 1 of Form W-2;
- Employers must report amounts includible in gross income of an employee under Code Section 409A in Box 12 of Form W-2 using Code Z; and
- Payors are required to report amounts includible in gross income of a non- employee under Code Section 409A in Box 7 and Box 15b of Form 1099-MISC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
