Yesterday, the IRS released Notice 2007-86, which generally extends good faith compliance with the IRC Section 409A one additional year, until December 31, 2008. Strict compliance with the final regulations under IRC Section 409A is pushed back one year, to January 1, 2009. The deadline to bring plan documents into compliance remains December 31, 2008.
In September 2007, the IRS released limited transition relief that was solely intended to facilitate documentary compliance with the final IRC Section 409A requirements and did not, therefore, extend the final regulations’ January 1, 2008 effective date. As the result of a significant movement spearheaded by law firms and other industry organizations, the IRS has now revoked much of this limited transition relief in favor of the more comprehensive relief set forth in Notice 2007-86.
Specifically, Notice 2007-86 provides that, during 2008, taxpayers will not be required to comply with the requirements of the final regulations, but rather, will be required to continue applying a reasonable, good faith interpretation of IRC Section 409A. Notice 2007-86 clarifies that, for these purposes, good faith compliance may, but need not, include reliance on the final regulations. It further provides that, subject to certain limitations:
A plan may provide for new payment elections to be made on or before December 31, 2008 with respect to both the time and the form of payment. New payment elections made in accordance with these provisions will not be treated as a change in the time or form of payment that would be subject to IRC Section 409A’s subsequent deferral rules, nor will such a change be viewed as an impermissible acceleration (so long as the election does not further defer a payment which would have been made in 2008 or provide for a payment in 2008 that otherwise would not have been made);
- Payment elections linked to qualified plans, 403(b) annuities, and 457(b) plans may continue
- Non-discounted stock options and stock appreciation rights may be permissibly substituted for discounted stock options and stock appreciation rights until December 31, 2008.
- The IRS also indicated that guidance establishing a limited voluntary compliance program for the correction of unintentional operational failures is imminent.