Correction Program for Nonqualified Deferred Compensation Plans Offers Useful But Limited Assistance

On December 3, 2007, the Treasury Department and the Internal Revenue Service (IRS) issued Notice 2007-100 (Notice), which gives taxpayers a limited ability to correct certain operational failures of a nonqualified deferred compensation plan to comply with Section 409A of the Internal Revenue Code (Code) and applicable Treasury and IRS guidance (Section 409A). Under the Notice, unintentional operational failures that are corrected in the same taxable year the failures occur generally get broad relief from the income inclusion and additional taxes triggered under Section 409A. In addition, for limited unintentional operational failures occurring in taxable years beginning prior to 2010 that are corrected within two years after the year of failure, the Notice substantially limits the income inclusion and additional taxes otherwise applicable. The Notice also requests comments on a potential expanded corrections program that would limit the income inclusion and additional taxes under Section 409A for certain operational failures not eligible for the transition relief available under the Notice, including corrections that involve larger amounts and corrections made after 2010.

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