IRS and Treasury Release Proposed Section 409A Income Inclusion Regulations

On December 8, 2008, the IRS and the Treasury Department issued proposed regulations on the calculation of amounts includible in income under Section 409A(a) of the Internal Revenue Code and the additional taxes imposed by this section with respect to service providers participating in certain nonqualified deferred compensation plans. The final 409A regulations take effect on January 1, 2009. All nonqualified deferred compensation plans must be brought into full operational and written compliance with the regulations by then. These proposed regulations provide some initial insight into how to determine this tax impact, although they are likely to be revised in certain respects. However, under IRS Notice 2008-115 (issued separately on December 10, 2008), the proposed regulations can be relied upon with respect to the calculation of income includible under Section 409A and the calculation of the additional taxes until the issuance of final regulations. Additionally, the IRS and the Treasury Department released Notice 2008-113, describing an enhanced correction program for certain operational errors that occur under Section 409A.