Guest Article

(From the October 6, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Nonqualified Deferred Compensation Plans: IRS Breaks No-Ruling Policy (Somewhat)

Carving out an exception to IRS's general prohibition against issuing rulings regarding nonqualified deferred compensation plans subject to IRC § 409A, the IRS issued a Revenue Procedure which will allow it to rule on the application of certain other tax laws -- such as FICA and estate and gift taxes -- to such plans. Revenue Procedure 2008-61.

Revenue Procedure 2008-3 lists various tax areas in which rulings and determination letters will not be provided until the IRS resolves the underlying issues through publication of a revenue ruling, revenue procedure, regulation or otherwise. These areas include "the tax consequences of arrangements described in § 409A, including rulings as to whether an arrangement is an arrangement described in § 409A." The Revenue Procedure also separately contains an unconditional "no-ruling" list, which identifies questions and problems on which IRS will simply not rule. These include the question of whether a self-insured medical reimbursement plan satisfies IRC § 105(h), and whether amounts used to provide benefits under an IRC § 125 cafeteria plan are includible in wages.

Citing the guidance it has issued regarding IRC § 409A and its experience otherwise with the private letter ruling program, IRS stated that § 5.08 is now too broad and it unnecessarily restricts IRS's ability to issue private letter rulings on issues that only indirectly involve the application of IRC § 409A. It therefore modified Revenue Procedure 2008-3 by deleting § 5.08, and adding to the unconditional "noruling" list in § 3.01 a more precisely-drawn description of the IRC § 409A matters on which it will simply not rule:

IRS explained that this modification will enable it to now "rule on the application of certain other tax law provisions (such as FICA and estate and gift taxes)" to taxpayers who participate in nonqualified deferred compensation plans.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067 Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.