In Revenue Ruling 2014-18, the IRS ruled that a stock appreciation right granted by a “nonqualified entity” for purposes of Internal Revenue Code Section 457A, that by its terms must be settled, and is only settled, in service recipient stock as defined in Section 409A, is exempt from Section 457A. Section 457A generally applies to deferred compensation paid by certain foreign corporations. Section 457A provides that the term “nonqualified deferred compensation plan” has the meaning given under Section 409A, except that it also includes any plan that provides a right to compensation based on the appreciation in value of a specified number of units of the service recipient, i.e., stock appreciation rights. While stock options that are exempt under Section 409A are exempt from Section 457A, stock appreciation rights are generally not exempt. This ruling allows certain stock appreciation rights to be exempt from Section 457A.

A copy of the revenue ruling can be found here.