IRS Notice 2007-86 extends to December 31, 2008, the transitional relief period for non-qualified deferred compensation plans to comply with Section 409A.

Taxpayers are not required to comply with the Final Section 409A Regulations prior to January 1, 2009. Until December 31, 2008, taxpayers may rely on Notice 2005-1 (and until December 31, 2007, the Proposed Section 409A Regulations) even where inconsistent with the Final Section 409A Regulations.

If an issue is not addressed in Notice 2005-1 or other applicable guidance, a taxpayer's good faith, reasonable interpretation of Section 409A (taking into account Notice 2005-1 and other applicable guidance) will be treated as compliance with Section 409A. Although compliance with the Proposed or Final Section 409A Regulations before January 1, 2008, and the Final Section 409A Regulations thereafter will constitute reasonable, good faith compliance, compliance with the Final Section 409A Regulations is not strictly required before January 1, 2009.

Also, extended to December 31, 2008, is transitional relief which permits:

  1. plans to allow new payment elections (subject to the limitation that an election may not be made to defer amounts payable in the year of the election or to accelerate payment of amounts to the year of election);
  2. stock options or stock appreciation rights to be amended to comply with Section 409A by setting fixed payment terms;
  3. non-discounted stock options or stock appreciation rights in general to be granted in substitution for discounted stock options or stock appreciation rights; and
  4. payment elections under a non-qualified deferred compensation plan to be linked to elections under a qualified plan, a 403(b) annuity, an eligible 457(b) plan or certain foreign broad-based plans.