An Analysis of the Final 409A Regulations on Deferred Compensation
Kenneth A. Raskin, Mark T. Hamilton

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The Treasury Department and the IRS recently issued final regulations under Internal Revenue Code Section 409A ("409A"), the landmark provision that marked a major change in the tax treatment of certain deferred compensation plans. The final regulations contain limited transition periods expiring at the end of 2007 and other guidance that will have an immediate impact on employers, from major corporations to small enterprises.

The final regulations, issued on April 10, 2007, provide definitive guidance on the taxation of nonqualified deferred compensation and amounts includible in income under 409A. 409A imposes significant restrictions on a wide variety of nonqualified deferred compensation plans and arrangements. If a nonqualified deferred compensation plan fails to meet the rules contained in the legislation and related IRS guidance, there are adverse tax consequences for the individual with respect to whom the failure relates. This article is an updated version of the article White & Case LLP released last year, discussing the proposed regulations under 409A and Notice 2005-1. This article recommends actions for employers to take in 2007 and, in doing so, describes the significant provisions of the final regulations (including clarifications and changes from the guidance provided in the proposed regulations).