The IRS previously provided relief and guidance permitting the correction of certain operational and document failures under Section 409A of the Internal Revenue Code of 1986, as amended ("409A"). This guidance was issued under Notice 2008-113 and Notice 2010-6, respectively. To access the previous SGR Client Alert discussing the relief available under these Notices, click here.
On November 30, 2010, the IRS issued Notice 2010-80, which modifies and provides additional guidance on the correction relief available under 409A. It is important to note that except as specifically mentioned below, the transitional relief provided under Notice 2010-6 for document failures (and related operational failures) must be completed by December 31, 2010.
Specifically, Notice 2010-80:
- Clarifies that relief is available under Notice 2010-6 for nonqualified plans that are linked to qualified plans so long as the time and form of payment under the nonqualified plan is not affected by the amount deferred under, or payment provisions of, the qualified plan.
- Clarifies that plan document failures of certain stock options and stock appreciation rights that were intended to be subject to, and compliant with, 409A, are eligible for relief under Notice 2010-6.
- Provides an additional method of correction under Notice 2010-6 for failures involving payments upon separation from service that are dependent upon the service provider signing a release, noncompetition agreement, or similar document. For this correction, transitional relief is extended through December 31, 2012 if the failure was in effect on, or before, December 31, 2010.
- Provides limited relief from certain information reporting requirements under Notice 2008-113 and Notice 2010-6, including relief from (1) the requirement that service recipients provide certain information to service providers under Notice 2008-113 for corrections made in the same taxable year as the failure occurs, and (2) the service provider information reporting requirements that arises upon use of the transition relief under Notice 2010-6.