On January 5, 2010, the IRS issued Notice 2010-6 (the “IRS Notice”), which establishes a correction program for certain inadvertent instances of documentary noncompliance involving deferred compensation arrangements subject to Section 409A of the Internal Revenue Code (“409A”). The IRS Notice also clarifies the IRS’ previously issued Notice 2008-13 regarding certain operational defects.
In addition to permitting the correction of certain specified document failures resulting in a reduction or potential elimination of current income inclusion and additional taxes under 409A, the IRS Notice also provides that certain unclear terms contained in deferred compensation plans will not be regarded automatically as a documentary failure.
Finally, the IRS Notice provides transition relief for certain types of corrections until December 31, 2010, whereby certain 409A plan document failures may be corrected by December 31, 2010 without having to pay any 409A tax or penalty that would otherwise apply.
Importantly, some taxpayers may be reluctant to utilize the IRS Notice because of the information and reporting requirements that must be satisfied to achieve correction.
For additional more detailed information regarding the IRS Notice, see our previously issued Client Alert which is available here.