In general, proposed rulemaking issued in December 2008 with respect to income inclusion under Section 409A of the Internal Revenue Code of 1986, as amended (available here) provides that if there is a Section 409A violation in a taxable year, all compensation deferred under the applicable nonqualified deferred compensation arrangement for that taxable year and all preceding years is includible in the service provider’s gross income to the extent not subject to a substantial risk of forfeiture (i.e., vested) and not previously included in gross income in a prior taxable year. Although the proposed income inclusion regulations appear to permit the correction of certain plan provisions that do not comply with Section 409A without penalty as long as the underlying amounts are unvested, they include certain anti-abuse provisions intended to prevent impermissible changes in the time or form of payment.
Pursuant to the final regulations under Section 409A of the Internal Revenue Code of 1986, as amended, a termination of employment generally occurs at such time as the employer and employee reasonably anticipate that the level of services to be performed after such time, whether as an employee or an independent contractor, would permanently decrease to no more than 20% of the average level of services performed over the immediately preceding 36-month period (or, if services were performed for less than 36 months, over the full period of services). Further, an independent contractor has a separation from service when there is a good faith and complete termination of the underlying contractual relationship.
The Internal Revenue Service (IRS) recently issued proposed Treasury Regulations (available here) that would clarify certain provisions of the final regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The proposed regulations also would expand the anti-abuse provisions of proposed rulemaking issued in…
Executives required to repay compensation as a result of a compensation clawback regulation, provision or policy should be mindful of certain tax consequences to the executive as a result of the repayment. As described below, the tax consequences will be different when repayment occurs in a year subsequent to the year of the original payment versus when payment and repayment occur in the same year, and with respect to the former, there is more than one avenue of tax relief available to the executive stemming from the repayment.