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CCH® PENSION AND BENEFITS — 9/05/07

No plans to extend 409A compliance deadline, Treasury official says

Although more than 90 of the country’s most prominent law firms have sought to persuade the Treasury Department to extend the deadline for compliance with the new Code Sec. 409A regulations, “there are no plans to extend the deadline at this time,” Andrew Desouza, a spokesman for the Treasury Department, told CCH on August 22, 2007.

The final 409A regulations were issued in April 2007 (CCH Pension Plan Guide ¶24,508O). Currently, the deadline for compliance under the regulations is December 31, 2007. The current deadline itself represents a one-year delay in the compliance deadline set under the initial proposed regulations. In Notice 2006-79 (CCH Pension Plan Guide ¶17,134Q), the IRS explained that it was delaying the deadline until December 31, 2007, “in order to allow sufficient time for taxpayers and their representatives to analyze the final regulations and come into compliance.”

Law firms ask for one-year delay

Regina Olshan, an employee benefits specialist with Skadden Arps, sent a letter on behalf of 92 law firms requesting that the IRS extend the deadline to bring plan documents into compliance with the 409A rules from December 31, 2007 to December 1, 2008. The letter, sent on August 21, 2007, to Acting IRS Commissioner Kevin Brown, also requested that all transitional relief currently scheduled to expire on December 31, 2007, be extended until December 31, 2008, and that the date of the applicability of the final regulations be changed to January 1, 2009.

Desouza told CCH that the Treasury Department was reviewing the letter, but that, as it stands today, the current deadline remains. However, in her letter, Olshan contended that even the most sophisticated practitioners differ or are uncertain as to how to apply the rules under the new Code Sec. 409A regulations. Practitioners are finding the final Code Sec. 409A regulations to be lengthy and complex, frequently requiring the collection, review and analysis of hundreds of interrelated deferred compensation arrangements maintained by corporate clients.

Olshan expressed concern that complying with the regulations in such a short time frame may lead to mistakes, oversights and errors. She also noted that attempted compliance with the deadline is putting undue strain on clients’ resources and imposing administrative burdens on employers and their service providers. The issue is of pressing concern because failure to comply with the regulations may cause significant tax liabilities for employers, including immediate recognition of compensation as well as additional interest and a 20% penalty.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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