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Correction for Missed Deferral

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Client has a payroll cycle where the paycheck for final payroll period which ends 12/31 is paid in the first week of January. Their deferred compensation plan states that deferrals for the final payroll period are attributed to the prior year when earned, not paid, to comply §1.409A-2(a)(13).

The client inadvertently neglected to deduct any deferrals from the first January 2011 paycheck that was attributable to December 2010 wages. They are planning on correcting by deducting from the next January paycheck. There are no insiders and amounts in question area all less than 16,500 for each individual.

Under Notice 2008-113, does this fall under IV.A as a correction of a missed deferral in the same tax year (2011) or under V.B as a correction in the subsequent tax year (a deemed deferral for 2010 corrected in 2011)? I can argue both sides so I'm letting the client's counsel be the tie breaker, but I'm curious if there is a right answer.

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