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js-2162
The Treasury Department and IRS issued Notice 2005-1 today which provides guidance regarding transition rules under section 409A. Section 885 of the recently enacted American Jobs Creation Act of 2004 added section 409A to the Internal Revenue Code, providing new rules for nonqualified deferred compensation plans. Section 409A provides that unless specified requirements are met, all amounts deferred under a nonqualified deferred compensation plan for all taxable years are currently includible in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income.
Under sections 885(e) and 885(f) of the legislation, Congress directed the Secretary of the Treasury to issue guidance regarding the termination and amendment of certain nonqualified deferred compensation arrangements and to define a change in ownership or control for purposes of Section 409A, within 60 days and 90 days respectively of enactment of the legislation. Notice 2005-1 addresses these guidance items. In addition, this guidance defines the arrangements that will be considered deferred compensation subject to the new rules. Finally, this guidance outlines the new reporting and employment tax obligations of employers in connection with section 409A.
IRS Chief Counsel Donald Korb said, Given the significant changes that section 409A will require for nonqualified deferred compensation plans, we developed this guidance being mindful to avoid establishing rules that could become traps for the unwary.
Section 409A applies to amounts deferred on or after January 1, 2005, subject to several special effective date rules.
A copy of Notice 2005-1 is attached.
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