Correction: Failure to Distribute Options

[Randy Watson]

I'm trying to determine whether the failure to make a distribution is eligible for correction under 2008-113. I'm looking at Section V.D(2)(a) in particular, which allows a correction of "an amount that should not have been deferred compensation under the plan" that is "otherwise treated as defered compensation under the plan and such excess amount otherwise would have been paid to the servive provider during the service provider's taxable year in which the excess amount was...otherwise treated as defered comepnsaiton under the plan".

It appears that this Section was drafted for deferrals that exceeded the participant's deferral election. It does not specifically reference amounts that should have been distributed. However, an amount that should have been distributed under the plan but wasn't certainly "should not have been deferred compensation under the plan" for the remainder of that tax year. In addition, the amount was "otherwise treated as deferred compensation under the plan." Am I reaching too far on this interpretation?

[XTitan]

Since V.D makes no mention of underpayments, I think that you fall to VI.C or VII.D depending on the size of the missed payment.

[Randy Watson]

Since V.D makes no mention of underpayments, I think that you fall to VI.C or VII.D depending on the size of the missed payment.

Yes, the fact that those Sections clearly allow for the correction of this kind of failure makes me even less confident that I could use V.D.

[XTitan]

On the other hand, I had a client's counsel say that V.D did apply to an underpayment of distribution. Go figure.