Many executive compensation arrangements, including nonqualified deferred compensation plans, employment agreements, and equity compensation plans, are subject to strict deferral election and payment timing rules under Internal Revenue Code Section 409A. Failure to comply with these rules results in an employee incurring immediate income inclusion of amounts deferred, an additional 20% penalty tax on these amounts, and interest. The IRS and Treasury Department required all plans subject to Code Section 409A to be amended no later than December 31, 2008. More recently, the Department of Treasury and the IRS have issued proposed regulations that explain how to calculate amounts includible in income when Code Section 409A is violated and the resulting penalties and interest. The IRS also issued additional guidance that offers relief from these penalties in many circumstances if employers take corrective action by December 31, 2009.

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