Client Alert

On October 22, 2007, the Department of Treasury and the Internal Revenue Service issued Notice 2007-86, which generally extends to December 31, 2008 the transition relief under Internal Revenue Code Section 409A. The transition relief was otherwise scheduled to expire on December 31, 2007. The extension is intended to provide employers with additional time necessary to make decisions regarding the application of Section 409A to their compensation plans and agreements.

Notice 2007-86 generally provides for the following:

Plans will not currently violate Section 409A provided that taxpayers apply a reasonable, good-faith interpretation of Section 409A and operate the plans in accordance with their terms. Following December 31, 2007, taxpayers may rely on either Notice 2005-1 or the final regulations but may no longer rely on the proposed regulations. Documents must be brought into written compliance with Section 409A by January 1, 2009.

Until December 31, 2008, a service provider may modify previous payment elections without the modification being treated as a change in time or form of payment or an acceleration of payment. However, the modification may not defer payment of amounts that would otherwise be payable in the year of the modification, or cause an amount that would otherwise have been paid in a later tax year to be paid in the year of the modification.

The ability to link a payment election under a nonqualified deferred compensation plan to an election under a qualified plan is extended through 2008.

Discounted stock options granted to service providers (other than Section 16 officers and directors) may be cancelled and reissued until December 31, 2008, subject to the limitations set forth in Notice 2006-79.

Taxpayers still must be in compliance with the requirements of Section 409A(b) relating to assets in offshore trusts by December 31, 2007.

Despite the extension of the compliance deadline to December 31, 2008, employers should continue to analyze the complex issues presented by Section 409A and should continue on an orderly schedule to complete the internal review and amendment process by the new deadline.

In addition, on October 23, 2007, the IRS issued Notice 2007-89, which provides certain relief from the Section 409A reporting requirements, which were otherwise scheduled to take effect this year.

If you have questions regarding this Client Alert, please contact Bill Whitehurst http://www.wcsr.com/WilliamWhitehurst, the principal author of this client alert. You may also contact either the Womble Carlyle attorney with whom you usually work or one of our Employee Benefits or Corporate & Securities attorneys listed on the following links.

Womble Carlyle Sandridge & Rice Employee Benefits Lawyers
Womble Carlyle Sandridge & Rice Corporate & Securities Lawyers