November 9, 2004 - Phil Hodgen

Nonqualified deferred compensation guidance coming

The new American Jobs Creation Act of 2004 created new Section 409A in the Internal Revenue Code.

This new provision spells out exactly how nonqualified deferred compensation plans work (or don’t).

In my representation of families and family-owned businesses, a nonqualified deferred compensation plan is frequently used to give non-family member executives an incentive to stay with the family-owned business. (You don’t want to give away stock, so you have to find some other way to keep talented people around).

For the new Section 409A, Congress did the typical Congress trick: write a broad rule, wave their Congressional hands, and tell the IRS to write regulations interpreting and implementing the rule.

Happily, the IRS is promising to publish guidance for nonqualified deferred compensation plans by December 31, 2004. This is according to Ed Solomon, deputy assistant secretary for regulatory affairs in Treasury’s Office of Tax Policy. He made this statement at last weekend’s California Bar’s Tax Section annual meeting.

C’mon IRS! I have some popcorn in the popper here. I need to get these projects wrapped up!

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