7.1.1.d: Section 409A of the Internal Revenue Code

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Abstract

The American Jobs Creation Act added Section 409A to the Internal Revenue Code, fundamentally changing the tax rules governing nonqualified deferred compensation. Section 409A creates broad rules governing the timing of deferral elections, permissible distribution events, and the timing of tax inclusion for nonqualified deferred compensation. Generally, deferred compensation exists where a service provider has a legally binding right to compensation during a taxable year that becomes payable in a later year.