Irc Section 409a
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An internal revenue code section 409a primer by tony ling and galen mason1 the american jobs creation act of 2004 was signed into law on october 22 2004.
Irc section 409a. Read the code on findlaw. Section 409a of the united states internal revenue code regulates nonqualified deferred compensation paid by a service recipient to a service provider by generally imposing a 20 excise tax when certain design or operational rules contained in the section are violated. The regulations provide a definition of a nonqualified deferred compensation plan subject to section 409a including rules related to the statutory effective date and rules governing initial and subsequent deferral elections the establishment of the time and form of payment.
Internal revenue code section 409a was designed to address perceived abuses by executives who used their authority to accelerate distributions in deferred compensation plans while knowing that the companies they represented were approaching financial ruin. Notwithstanding section 885 d 1 of the american jobs creation act of 2004 pub. 409a affects nonqualified retirement plans and other deferred compensation arrangements.
Complying with section 409a is critically important because noncompliance will result in an executive being subject to income tax in the year nqdc becomes. Internal revenue code section 409a regulates nonqualified deferred compensation nqdc plans and arrangements which are commonly used to provide supplemental compensation to key executives. Service recipients are generally employers but those who hire independent contractors are also service recipients.
108 357 set out below subsection b of section 409a of the internal revenue code of 1986 shall take effect on january 1 2005. The 409a creates a framework for private companies to follow when valuing private stock. What is irc section 409a.
It created a new section 409a of the internal revenue code 409a and the code respectively. Notwithstanding section 885 d 1 of the american jobs creation act of 2004 subsection b of section 409a of the internal revenue code of 1986 shall take effect on january 1 2005. 109 135 provided the following.
Internal revenue code 26 usca section 409a. The irs subsequently introduced section 409a in 2005 later finalizing it in 2009.
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