IRS Extends IRC Section 409A Compliance Deadline One Year

 The IRS in Notice 2007-86, released October 22nd, 2007, has generally extended the December 31, 2007 deadline for complying with Internal Revenue Code Section 409A until December 31, 2008. This means that companies will generally have an extra year to amend deferred compensation arrangements and the documents reflecting those arrangements to bring them into compliance with the Section 409A requirements. This extension also applies to discounted stock options that are still eligible to be amended for Section 409A compliance purposes. We note that an exercise in 2007 or 2008 of a discounted stock option that has not yet been amended to bring it into compliance will be a violation of Section 409A and could result in additional taxes and penalties. 

Notice 2007-86 also offers some interpretive guidance with respect to the manner in which deferred compensation arrangements should be amended to make them comply with Section 409A, as well as guidance on how they should be operated until the final Section 409A regulations (issued in April 2007) become effective on January 1, 2009. The text of Notice 2007-86 is available through this link: http://www.treasury.gov/press/releases/hp631.htm

Section 409A and the related guidance must be applied carefully based on the particular structure of each deferred compensation arrangement. In light of this Notice, if you are working with any deferred compensation arrangements, you should consult your tax or compensation lawyer to determine the manner in which the compliance period extension affects you and to formulate a plan with respect to operating and completing any proposed amendments during the remainder of the transition period.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalty or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.