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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
A program for correcting plan document violations is “not necessarily the next step” the government will take as it develops a voluntary correction program for Code Sec. 409A violations, an IRS official told practitioners on January 27, 2009. The government is still trying to determine whether it is feasible to have a document correction program, Stephen Tackney, IRS senior counsel, Executive Compensation Branch, Associate Chief Counsel (Tax Exempt and Government Entities), indicated at a D.C. Bar Taxation Section program.
Tackney said one concern is that the government does not want to put people with document failures in a better position to make plan changes than people whose plans comply with Code Sec. 409A. The official asked for comments on a plan document correction program. One audience member suggested that a program would be particularly useful for new plans.
Tackney and Helen Morrison, Treasury acting deputy benefits tax counsel, discussed the treatment of deferred compensation under Code Sec. 409A and the relief available for voluntary corrections. The government representatives focused on proposed regulations dealing with the calculation of amounts includible in income (CCH Pension Plan Guide ¶20,262S ) and the IRS Notice regarding the correction of operational failures (CCH Pension Plan Guide ¶17,141J ).
Catherine Creech, principal, Ernst & Young LLP, Washington, D.C., who moderated the program, noted that a plan failure is not technically a violation of Code Sec. 409A if all of the deferred amounts are nonvested. Tackney responded that there is technically a violation, but that nothing is included in income, so there are not tax consequences. He indicated that the plan could be corrected in the current year if the nonvested amounts will not vest until a later year.
Morrison contrasted Code Sec. 409A with Code Sec. 457A . Under the latter provision, deferred amounts are not taxable if the amount is not determinable, she said. For example, an amount payable under a formula based on future profits might be vested but not taxable until the formula is applied. However, under Code Sec. 409A , the taxable amounts have to be estimated, if necessary, in the case of a violation. She said that this treatment reflects a congressional stance that does not favor nonqualified deferred compensation plans and requires inclusion at the earliest time.
Tackney emphasized that, if there is an operational failure, the taxable amount must be included in income in the year of the violation. A taxpayer cannot correct the failure by declaring the taxable amount in a later year, such as the year the violation is discovered. Tackney noted that the interest calculations on a taxable amount may be complex, especially for a multiyear violation, but he said that the IRS is unable to devise a safe harbor approach for determining the amount of interest.
Creech asked about the effect of the proposed regulations on calculating taxable amounts. Tackney responded that taxpayers do not have to follow the regulations, but they must use a reasonable good-faith method for calculating deferred amounts. Compliance in its entirety with the proposed regulations qualifies as a good-faith method.
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