Alerts

Summary of Certain Investment Management-Related Provisions of Proposed Regulations Under Section 409A

December 8, 2005

Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A"), introduced by the American Jobs Creation Act of 2004, contains new rules governing compensation deferred after December 31, 2004, including any amount that is earned or that vests after December 31, 2004. The IRS and Treasury Department have recently issued their first installment of proposed regulations under Section 409A (the "Proposed Regulations"), expanding upon the initial guidance contained in Notice 2005-1 (the "Notice"), which was released in December 2004.

The preamble to the Proposed Regulations states that taxpayers do not need to amend their deferral plans to come into written compliance with Section 409A until December 31, 2006. However, taxpayers must nevertheless operate in good faith compliance with Section 409A (and may need to make certain changes by December 31, 2005) in order to avoid the additional taxes and interest charges imposed on participants in deferred compensation plans that violate Section 409A.