Jeff Kirtner

457f / 409A payment extension within STD period

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A tax exempt's employment agreement entered into years ago provides for a payment to an employee on August 31, 2017 if the employee is employed on that date.  Thus the agreement is within the short term deferral rules under 457f proposed regs and 409A.  The employee would like to be paid and taxed in 2018 rather than 2017.  Under the STD rule, agreements can now be drafted to provide for vesting in one year and payment and tax by March 15th of the next year.  But can an agreement providing for payment in 2017 be amended to move the payment date to early in 2018?  Issues include: 

      1. If an agreement extending the payment date is entered into, does that agreement violate 457f or 409A (e.g., the subsequent deferral rules), assuming the extension still requires payment by March 15, 2018?

       2. If no agreement extending the payment date is entered into, can payment be made in 2018 without violating 457f or 409A, on the theory that there is no deferral of compensation, even though payment in 2018 violates the terms of the agreement? 

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Partial answer:

Under 457(f), the amount vests and is taxable on the date that the risk of fofeiture lapses, which is August 31. The IRS recently came out with guidance about extending the date for risk of forfeiture.  Track that down.  You may find that it is too late to elect an extension, even under the new guidance.  

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I would think that an extension can't work, either for 457(f) or 409A, if the employee's agreement is required, and obviously it would be required here.

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