Mastering New Section 409A and 457(f) Deferred Compensation Rules: Calculating and Reporting Includible Amounts

Tax advisers serving clients who have deferred compensation under a nonqualified deferred comp plan must be aware of the income inclusion rules under Section 409A and its counterpart for exempt organization employees, Section 457(f). IRS rules on deferrals from nonqualified plans require taxpayers to include in taxable income any compensation amounts deferred when a “triggering event” creates a lapse in the "substantial risk of forfeiture (SROF)” of the deferred compensation.

In June, 2016 the IRS issued proposed separate sets of proposed regulations for Sections 409A and 457(f).  Both proposed regulations intend to clarify the SROF rules; however, the new rules governing Section 457(f) differ from the 409A regs, specifically in the treatment of non-compete clauses and short-term deferrals. Tax advisers should be aware of the new standards to avoid costly tax mistakes due to failure to include reportable amounts.

The IRS initiated a "compliance initiative project" to check compliance with Section 409A and 457(f) rules in 2014, and the new regulations signal that the IRS will continue its scrutiny of deferred compensation under nonqualified plans. Since the penalties for noncompliance are steep, and the regulations mandate disclosures from both employers and employee/service providers, tax advisers need to be fully aware of the operations and reporting requirements of 409A and 457(f) deferred amounts to avoid costly tax consequences.

Listen as our experienced panel provides a thorough and practical guide to the current rules governing 409A and 457(f) deferrals.

1. Overview of Section 409A and 457(f)
2. Identifying Recognition-triggering events
3. New IRS guidance issued in REG-123854-12 for Section 409A Plans
4. New guidance for 457(f) plan deferrals and deviations from 409A treatment
5. Arrangements not treated as deferred compensation under Section 457(f)
6. Planning considerations for taxpayers with 409A plans

The panel will discuss these and other important issues:

• What events constitute a lapse in "substantial risk of forfeiture" (SROF) that qualify as a triggering event, such that a taxpayer must include the deferred amount in current year taxable income, under both a 409A and a 457(f) plan?
• How are stock rights impacted by Section 409A requirements?
• New proposed rules in REG-123854-12
• What are the reporting responsibilities for employers and employees on 409A deferred amounts?
• How do the new proposed regulations under 457(f) treat non-compete clauses differently in determining SROF?
• Required calculations when compensation deferred under a nonqualified plan becomes includible due to a lapse in SROF

Learning Objectives

After completing this course, you will be able to:

• List the criteria detailing when amounts may be deferred under a nonqualified deferred compensation plan under Sections 409A and 457(f)
• Describe the rules governing "substantial risk of forfeiture" and “triggering events”
• Identify events that qualify as a lapse in the substantial risk of forfeiture that require inclusion of deferred amounts in current year taxable income
• State the modifications to SROF rules contained in new IRS guidance REG-123854-12
• Distinguish the differences in treatment of certain items between the 409A and the 457(f) proposed regulations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Basic knowledge of taxation.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).