Wednesday, May 13, 2015

Deferred Compensation Plans And IRC § 409A Compliance

If the plan documents and contracts of deferred compensation plans are not carefully drafted to comply with the requirements of Internal Revenue Code § 409A, a tax disaster can befall the employees intended to be benefited by such arrangements.

Many companies provide deferred compensation arrangements for important employees.  Deferred compensation arrangements can be done through "qualified" and/or "non-qualified" plans.  Often non-qualified plans are used. 

A non-qualified deferred compensation plan that fails to comply with the requirements of IRC § 409A will result in the affected employee having to recognize current and past deferred compensation in one lump sum.  Pay tax on that lump sum whether the money has actually been received or not, and then pay an additional 20% penalty tax and interest to the IRS.

Plans that are improperly drafted can be corrected to avoid this tax disaster for the company's employees, but only if the corrections are made BEFORE the tax year in which any portion of the deferred compensation vests.

The attorneys-CPAs at the law firm of AttorneyBritt are familiar with the complicated requirements of IRC § 409A deferred compensation plans, and are available to review the plan documents and contracts of companies that already have such plans.  We can also draft such plans for companies looking for ways to compensate key employees while providing incentives for such employees to remain employed by their employer.

For help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.

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