Code Section 409A, added by the 2004 Jobs Act, requires that amounts under a nonqualified deferred compensation plan are currently includible in income to the extent that they are not subject to a substantial risk of forfeiture, unless certain requirements are met. A deferred compensation plan is an agreement that the employee will be paid at a future time for work that he does at the present but does not give all the tax benefits of a deferred compensation plan because they do not meet all requirements. If compensation is deferred and the requirements are not met, all deferred amounts under the plan must be included in income by the participant, and interest is assessed at the underpayment rate plus 1%, and a 20% penalty is incurred. The IRS issued final regulations addressing nonqualified deferred compensation plan rules T.D. 9321, 04/10/2007. The new regulations are based on comments from the general public, and are in response to reported abuses of nonqualified deferred compensation plans. Be sure to amend any plans prior to 12/31/07.
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