In the comprehensive tax reform proposal by Representative Camp issued yesterday, Section 409A would be repealed. Instead, essentially the Section 83 rules would be applied to all compensation. Tax would be imposed when a substantial risk of forfeiture ends. This would eliminate voluntary deferrals for all practical purposes. Based on enactment in 2014 (which won’t happen), any compensation earned in 2015 or later would be subject to these rules. Prior deferrals under existing plans would have to be paid out within 10 years.
The revenue estimate for this change is more than $9 billion over 10 years. The basic tax policy argument for the proposal is that 409A is too complicated and is only used by highly paid taxpayers. While you can make other arguments for deferring compensation, it is hard to disagree with those two points.
We can expect that deferred compensation will be in play if there is comprehensive tax reform next year and Camp’s proposal may be the starting point for the discussion.