Last month, I brought to your attention an alert issued from Cooley Godward Kronish LLP regarding IRS Notice 2007-78 (Sept. 10, 2007) which gave taxpayers until Dec. 31, 2007 to bring nonqualified deferred compensation plans into documentary compliance with Section 409A of the Internal Revenue Code and the final regulations issued there under.
However, on Oct. 22nd, the IRS issued Notice 2007-86 that generally extends to Dec. 31, 2008 the transition relief that was scheduled to expire on Dec. 31, 2007. Specifically, “this transition relief revokes and supersedes the transition relief provided in § III of Notice 2007-78, 2007-41 IRB 780, and modifies the relief provided in § IV of Notice 2007-78 related to employment agreements, as described below.” However, there are other aspects of Notice 2007-78 that are not modified by Notice 2007-86, so a careful read of the latest Notice is still required.
The IRS explained the change, issued only a few weeks after its previous notice, as follows: “Commentators stated that although the Notice 2007-78 transition relief was helpful, the transition relief in that notice did not adequately address the need for additional time for service recipients and service providers to analyze all of their plans and make informed and reasoned decisions regarding the changes that would be necessary to bring existing arrangements into compliance with the final regulations.” Clearly, cooler heads prevailed and this is great news for everyone rushing to make very difficult decisions that required extensive document reviews.
What does it mean for you? A sigh of relief and an easier 4th quarter. You have an additional year to take advantage of the transition rules and bring certain aspects of existing plans into compliance with the provisions of Section 409A.
But just because you have the additional year, don’t wait. Find, collect, centralize, and put online every possible document that could relate to “deferred compensation” under Sec. 409A. Use the extra time to set things up properly now and avoid a last-minute crunch a year from now. Your lawyers, accountants and tax advisors are not going charge less next year …