409A Correction Relief-IRS Notice 2010-6

February 2, 2010

This notice provides methods for taxpayers to voluntarily correct many types of failures to comply with the document requirements applicable under § 409A of the Internal Revenue Code (Code) to nonqualified deferred compensation plans and thereby avoid or reduce the current income inclusion and additional taxes under § 409A. This document correction program is intended to encourage taxpayers to review nonqualified deferred compensation plans to identify provisions that fail to comply with the requirements of § 409A and § 1.409A-1(c) of the Income Tax Regulations (a document failure), and to correct those plan provisions promptly, while also not providing an advantage to taxpayers participating in plans that initially fail to comply with § 409A over taxpayers participating in plans drafted in compliance with § 409A. Accordingly, this notice provides:

  • Clarification that certain language commonly included in plan documents will not cause a document failure.
  • Relief permitting correction of certain document failures without current income inclusion or additional taxes under § 409A, provided, in certain circumstances, that the corrected plan provision does not affect the operation of the plan within one year following the date of correction.
  • Relief limiting the amount currently includible in income and the additional taxes under § 409A for certain document failures if correction of the failure affects the operation of the plan within one year following the date of correction.
  • Relief permitting correction of certain document failures without current income inclusion or additional taxes under § 409A, if the plan is the service recipient’s first plan of that type (disregarding any plans not subject to § 409A or any plans under which all deferred amounts have previously been paid or forfeited) and the failure is corrected within a limited period following adoption of the plan.
  • Transition relief permitting corrections of certain document failures without current income inclusion or additional taxes under § 409A, if the document failure is corrected by December 31, 2010, and any operational failures resulting from the document failure are also corrected in accordance with Notice 2008-113, 2008-51 IRB 1305, by December 31, 2010.

This notice also clarifies certain aspects of Notice 2008-113, which addresses certain failures of nonqualified deferred compensation plans to comply with § 409A in operation (operational failures), including clarification of:

  • The application of the subsequent year correction method to late payments of amounts deferred.
  • The calculation of the amount that must be paid to the service provider as a correction of a late payment of an amount deferred under a plan if the payment would have been made in property, such as shares of stock.
  • The calculation of the amount that must be repaid by the service provider as a correction of an early payment of an amount deferred under a plan if the early payment was made in property, such as shares of stock.
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