7.1.7.b: Short Term Deferral Rule; I.R.C. Section 409A

Premium Content
This section of the Encyclopedia of Private Equity is premium content and only available to accounts which have a subscription. If you have an account that has access to this section, please login now.

Register For The Encyclopedia of Private Equity
Encyclopedia of Private Equity & Venture Capital (Monthly Recurring Subscription) Cost: $59.00
Single User - One Year of Complete Access (Best Value) Cost: $495.00

Abstract

In its efforts to reform the rules governing deferred compensation as a part of the American Jobs Creation Act of 2004 (the "Act"), Congress chose to legislate broadly and to leave it to the regulators to adopt the necessary exceptions and carve-outs required to arrive at workable rules. The Act's legislative history envisions, and newly enacted Code §409A requires, that the regulators will fill in the particulars of the regulatory scheme. In Notice 2005-1, and in the proposed regulation issued on September 29, 2005 (the "proposed regulation"), the IRS and the U.S. Department of the Treasury endeavored to follow Congress' lead. In addition to rules targeting particular compensation types (e.g., equity-based compensation) and practices (e.g., "separation pay"), the regulators granted a broad-based exemption from Code §409A for amounts that are paid out within 2 ½ months after the end of the taxable year of the service provider or the service recipient in which the amounts are no longer subject to a substantial risk of forfeiture (i.e., they become vested). ...