IRS has issued proposed regulations that would clarify or modify certain specific provisions of the final regulations under section 409A, including revisions to the rules regarding the calculation of amounts includible in income under section 409A. The proposed regulations:
(1) Clarify that the rules under section 409A apply to nonqualified deferred compensation plans separately and in addition to the rules under section 457A.
(2) Modify the short-term deferral rule to permit a delay in payments to avoid violating Federal securities laws or other applicable law.
(3) Clarify that a stock right that does not otherwise provide for a deferral of compensation will not be treated as providing for a deferral of compensation solely because the amount payable under the stock right upon an involuntary separation from service for cause, or the occurrence of a condition within the service provider’s control, is based on a measure that is less than fair market value.
(4) Modify the definition of the term “eligible issuer of service recipient stock” to provide that it includes a corporation (or other entity) for which a person is reasonably expected to begin, and actually begins, providing services within 12 months after the grant date of a stock right.
(5) Clarify that certain separation pay plans that do not provide for a deferral of compensation may apply to a service provider who had no compensation from the service recipient during the year preceding the year in which a separation from service occurs.
(6) Provide that a plan under which a service provider has a right to payment or reimbursement of reasonable attorneys’ fees and other expenses incurred to pursue a bona fide legal claim against the service recipient with respect to the service relationship does not provide for a deferral of compensation.
(7) Modify the rules regarding recurring part-year compensation.
(8) Clarify that a stock purchase treated as a deemed asset sale under section 338 is not a sale or other disposition of assets for purposes of determining whether a service provider has a separation from service.
(9) Clarify that a service provider who ceases providing services as an employee and begins providing services as an independent contractor is treated as having a separation from service if, at the time of the change in employment status, the level of services reasonably anticipated to be provided after the change would result in a separation from service under the rules applicable to employees.
(10) Provide a rule that is generally applicable to determine when a “payment” has been made for purposes of section 409A.
(11) Modify the rules applicable to amounts payable following death.
(12) Clarify that the rules for transaction-based compensation apply to stock rights that do not provide for a deferral of compensation and statutory stock options.
(13) Provide that the addition of the death, disability, or unforeseeable emergency of a beneficiary who has become entitled to a payment due to a service provider’s death as a potentially earlier or intervening payment event will not violate the prohibition on the acceleration of payments.
(14) Modify the conflict of interest exception to the prohibition on the acceleration of payments to permit the payment of all types of deferred compensation (and not only certain types of foreign earned income) to comply with bona fide foreign ethics or conflicts of interest laws.
(15) Clarify the provision permitting payments upon the termination and liquidation of a plan in connection with bankruptcy.
(16) Clarify other rules permitting payments in connection with the termination and liquidation of a plan.
(17) Provide that a plan may accelerate the time of payment to comply with Federal debt collection laws.
(18) Clarify and modify the proposed rules regarding the treatment of deferred amounts subject to a substantial risk of forfeiture for purposes of calculating the amount includible in income under section 409A.
(19) Clarify various provisions of the final regulations to recognize that a service provider can be an entity as well as an individual.
Proposed 409A Regulations
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