This thread is dedicated to 409A links.  If you post a 409A file to the ECE File library, please update this thread as well.

409a Compliance on Written Plan

Edison and Upper Saddle River, NJ - February 21, 2008 - The
Internal Revenue Service recently issued Notice 2007-78 that provides
plan sponsors an extension to December 31, 2008 to maintain compliance
with written documentation relative to deferred compensation plans.
Written language of a deferred compensation plan must be in compliance
with the regulation as of the end of this year. Plans, therefore, have
extra time to be modified to comply in the written form, but must
continue to be in compliance operationally with Section 409A. Where
written plan provisions don't comply with the regulation, plan sponsors
will not violate 409A if:



• The plan operates in compliance with 409A;


• Is amended on or before the December 31, 2008 deadline; and


• Complies with 409A retroactive to January 1, 2007.




What does this mean? Although the IRS has extended the deadline for
compliance relative to written plan documentation, the plan itself must
already operate under the 409A regulations. Therefore, there is no
relief in the manner in which deferrals are made. Some of the key
deferral aspects that 409A stipulates and for which compliance should
already be in effect are as follows:


• Timing of deferrals. Deferral elections must be
made before December 31 for compensation that will be deferred during
the following calendar year. For example, compensation that will be
deferred during 2008 would have required that the election be made
before December 31, 2007. The exception to this election rule includes
any "performance-based compensation".


• Deferral of "performance-based compensation".
Performance-based compensation is any compensation that is contingent
on satisfying pre-established performance objectives that cover a
period of at least 12 consecutive months. An election to defer
performance-based compensation may be made up to 6 months before the
end of the period; this does not include amounts that will be paid
regardless of performance, or if the amount is based on performance
objectives that are certain to be met at the time they were
established. Performance objectives are considered "pre-established" if
they are documented, in writing, no later than 90 days from the
beginning of the period. For example, assuming a short-term incentive
plan runs from January 1 through December 31, 2008, with awards based
on performance, a participant may elect to defer this form of
compensation until June 30, 2008, so long as the objectives were
established, in writing, by March 31, 2008, and that the level of
performance cannot be currently ascertained.


• Changes to deferral options. A participant may
change the form or timing of deferral, so long as: a) the election will
not be effective until 12 months after the election is made; b)
payments affected by such change are delayed for at least 5 years from
the original payment date; and c) elections relative to distributions
as of a specified time or on a fixed schedule are made at least 12
months before the scheduled payment date. This provision excludes
payments made as a result of the participant's death or disability.


• Delay in Payments for "Key Employees". 409A
requires that payments under a deferred compensation plan must be
delayed 6 months for key employees, as defined by IRC §416(i). A key
employee is one that, at any time during the plan year, is:



* an officer having an annual compensation greater than $130,000;


* a 5% owner of the company; or


* a 1% owner of the company having an annual compensation of more than $150,000.




Given that the administrative changes are already underway relative to
deferrals, the following questions relative to written documentation
should be evaluated and action taken by December 31, 2008 to comply
with the transition relief period:



• Are there any aspects of the plan that still conflict with 409A?


• Does the plan's language comply with the requirements under the regulation?


• Are deferral elections made on a written vehicle that complies with the regulation?


• Are elections for performance-based compensation made appropriately?
Are performance objectives pre-established and is the level of
performance against these objectives substantially unknown at the time
that deferrals can be elected?

• Are changes to deferral options properly documented within the plan?


• Does the plan document reflect the following:




* Is in the form of a written document;


* States a specific formula to calculate deferred compensation;


* Indicates the payment schedule or triggering events;


* Specifies a six-month payout delay for "key employees";


* Provides specific language regarding acceleration of distributions; and


* Includes a clause regarding substantial risk of forfeiture on deferred amounts?




Compliance with 409A is a key aspect of successful administration of
deferred compensation plans, and obviously, avoidance of scrutiny and
penalties. A thorough examination of administration of your deferred
compensation plans and implementation of changes to maintain compliance
of written documentation is essential before the December 31, 2008
deadline. Outside professional advice can provide an objective look at
your deferred compensation arrangements, and provide the necessary
guidance to move towards full compliance with 409A.



__________



The written advice
was not intended or written to be used, and cannot be used by any
taxpayer, for the purpose of avoiding penalties that may be imposed on
the taxpayer. The foregoing legend has been affixed pursuant to U.S.
Treasury Regulations governing tax practice.



__________

About the author

Wikipedia Entry regarding 409A

http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_409A

Blog with a ton of 409A links

http://siegler.wordpress.com/2008/09/04/irs-section-409a-compensation-plan-links/

http://www.regulations.gov/fdmspublic/component/main?main=DocumentDetail&o=090000648073b487

VC Experts.com, Inc. Launches New IRC 409A Calculator

PRWeb

November 10, 2008

- VC Experts.com, Inc., the popular online collection of forms,
seminars, data and commentary for the Private Equity & Venture
Capital industries, today announced the launch of a new IRC 409A
calculator found at www.pedatacenter.com .

With
the launch of the new 409A calculator, companies can now calculate
their stock option prices so that they meet the requirements under
Internal Revenue Code Section 409A. The 409A calculator was designed to
provide a comprehensive list of 'comparable' companies (i.e. similar
companies based on industry, valuation and/or geography) and to assist
in offsetting the rising cost of outside consultants and auditors as
the company CFO's determine fair value.

Other Upgrades: New Valuation Ticker

The
Valuation Ticker is a venture capital valuation tracking tool that
utilizes the average daily close prices of public companies in
particular industries. Each of these comparable public companies
received venture capital or private equity funding prior to their IPO.

Utilizing
average daily close prices from 1999 to present, these daily figures
are then applied to the most recent post-money valuation of a private,
venture-backed company within the same industry, as calculated by VC
Experts, to simulate the movement of that company's valuation on a
daily basis.

Additional data is utilized as a comparative
measure, including the NASDAQ and S&P 500 indexes. With this tool,
VCs, hedge fund managers, investment bankers and other investor groups
can create a bucket of comparable analysis, as well as determine
potential entry points when to go public.

The Key Investment Trends database is available to subscribers on either a monthly or annual subscription.

About VC Experts.com, Inc

VC
Experts serves the needs of the private equity and venture capital
communities, including entrepreneurs, fund managers and related service
providers, by providing current industry news, best practices, legal
forms, valuation databases, seminars and self-paced tutorial courses.
Its two websites are www.vcexperts.com and www.pedatacenter.com .


Media Contact:
VC Experts.com, Inc.
J. Michael Ostendorff
646-290-9254

http://www.morganlewis.com/index.cfm/publicationID/4f95994f-7cc1-481c-8ce4-9d9b4401a064/fuseaction/publication.detail

As employers come to grips with the new inflexibility of fully
implemented section 409A requirements, potential section 409A
violations and resulting adverse tax consequences are becoming a
reality. Even so, there are some tools available for
addressing section 409A compliance failures that can limit, and in some
cases eliminate, the adverse tax consequences associated with an
inadvertent failure to follow the rules under section 409A. In Notice
2008-113, the IRS provided lengthy and detailed guidance for
operational failures that are fixed within certain limited periods
following the occurrence of the failure. It is important to note
however, that Notice 2008-113 generally does not
offer relief with respect to a failure to satisfy the documentary
requirements of section 409A. In addition, as discussed below, a
special opportunity for correction during 2009 is provided, but the
opportunity requires action in 2009.

United States: New Section 409A Guidance Alert

 18 February 2009
Article by Bruce R. Jocz , Scott C. Sanders and Michael A. Tomberg

The Internal Revenue Service and the Department of the Treasury
have issued three new pieces of guidance related to Section 409A of
the Internal Revenue Code ("Section 409A"). The new
guidance includes Proposed Treasury Regulations addressing the
calculation of includable income and additional taxes under Section
409A, IRS Notice 2008-113 regarding the correction of certain
operational failures, and IRS Notice 2008-115 addressing wage
withholding requirements.

Background of Section 409A

Section 409A generally applies to compensation arrangements that
provide a legally binding right to a payment in a future year
(i.e., applies very broadly to various forms of deferred
compensation), unless certain exceptions apply. Violations of
Section 409A (failures to comply with either written documentation
requirements or the operation of the arrangements) will invoke the
following penalties to the service provider (usually the employee):
(1) a 20 percent excise tax (in addition to regular federal income
taxes), (2) immediate income inclusion (usually, on the date of
vesting), and (3) interest on the tax due at an increased rate from
the date of vesting. Generally, the employer will have reporting
and withholding obligations and will be subject to penalties for
any failure to properly satisfy such obligations. If Section 409A
penalties are incurred with respect to one type of payment
(e.g., a separation payment, equity compensation payment,
etc.), these penalties could also apply to payments under other
deferred compensation arrangements of the same type in which the
service provider participates and that are subject to Section
409A—even if such other deferred compensation
arrangements are compliant with Section 409A.

Proposed Treasury Regulations

The new proposed regulations under Section 409A address the
calculation of amounts includable in income as a result of failures
under Section 409A and the calculation of the additional taxes
applicable to such income. The proposed regulations generally apply
the adverse tax consequences associated with Section 409A failures
only with respect to amounts deferred under the non-qualified
deferred compensation plan in the year in which such failure occurs
and all previous taxable years, to the extent such amounts are not
subject to a substantial risk of forfeiture (i.e., to the
extent they are vested) and have not previously been included in
income.

The proposed regulations allow employers to correct plan
language which is non-compliant, on a prospective basis, to the
extent that the deferred amounts, including previously-deferred
amounts, under such plan are subject to a substantial risk of
forfeiture at the end of the year of the Section 409A failure. In
other words, for calendar years when deferred compensation becomes
vested (no longer subject to a substantial risk of forfeiture),
non-compliant plan language cannot be corrected. However, the
ability to correct plan language where the amounts deferred are
subject to a substantial risk of forfeiture at the end of a year
may not be permissible if the facts and circumstances indicate that
the employer has a pattern or practice of permitting such
non-permissible changes in the time and form of payment with
respect to non-vested deferred amounts.

Correction of Operational Errors

IRS Notice 2008-113 provides a correction procedure to address
certain operational failures with respect to Section 409A. This
notice does not address failures as to written compliance (failures
as to form). The types of failures that may be corrected generally
include the following:

The correction must take place in the same taxable year of the
failure. Certain corrections, however, may be made in the following
taxable year (other than with respect to insiders). Depending on
the failure, certain corrections may not be able to be utilized if
the employer experiences a substantial financial downturn or there
is a risk that the employer will be unable to pay the deferred
amount at the time set forth in the plan. A filing with the IRS is
usually necessary as part of the correction.

Reporting and Wage Withholding Requirements

IRS Notice 2008-115 provides guidance related to the reporting
and wage withholding requirements with respect to Section 409A. The
reporting and withholding obligations for Section 409A are
generally consistent with the income inclusion calculations under
the proposed regulations discussed above.

Action Items

Employers should conduct a regular inventory of their deferred
compensation arrangements subject to Section 409A in order to
assess whether such arrangements are in compliance in operation and
form with the requirements of Section 409A. The sooner that any
failure is determined, the greater the likelihood that Section 409A
penalties may be mitigated or even eliminated.

March 28, 2009

NYSBA Issues Report on Remedying Documentary Noncompliance by § 409A Plans

The New York State Bar Association Tax Section has released a report on Remedying Documentary Noncompliance by Section 409A Plans in Response to Notice 2008-113 (No. 1180):

Notice 2008-113, 2008-51 I.R.B. 1305 (Dec. 22, 2008), requests comments on the possibility of
establishing a voluntary compliance program that would provide relief to taxpayers that have
established a nonqualified deferred compensation plan that fails by its terms to comply fully with
Section 409A ... to bring the plan into compliance. This report responds to
Notice 2008-113’s request for comments. ...

[W]e propose below a three-pronged program. The first would set out specific, narrowly
targeted types of violations which may be viewed as presenting a low probability of abuse and
which we therefore view as appropriate for inclusion in a list of correctable violations. The
second would relate to those circumstances in which errors are quickly discovered and corrected.
The third involves the establishment of a policy of prospective enforcement and liberal
transitional relief to allow taxpayers to adapt to new authorities interpreting Section 409A or
changes in enforcement approach. Our proposals are intended to facilitate the establishment of a
program consistent with Treasury's and the IRS's two identified general principles, while also
addressing over the course of our discussion below the seven issues specifically identified by
Treasury and the IRS for comment.