Failure to Bring Arrangement into Compliance

[Guest PBJ]

Hello!

What are the consequences of failing to bring a 409A arrangement into compliance by the end of this year? Specifically, is the vested deferred comp taxable for the 2009 tax year or is it somehow included in income retroactively? Any help would be appreciated! Thanks!!

[Steelerfan]

Hello!

What are the consequences of failing to bring a 409A arrangement into compliance by the end of this year? Specifically, is the vested deferred comp taxable for the 2009 tax year or is it somehow included in income retroactively? Any help would be appreciated! Thanks!!

I think the rules require retroactive income taxation and withholding plus 20% on non-grandfathered amounts from the time the amounts were deferred and first not subject to a substantial risk of forfeiture.

[Guest PBJ]

Thank you. To clarify, do you mean that if an employee's arrangement is out of compliance on 1/1/09 that they have to go back and amend returns from the prior years and pay the income tax. Or, does the employee report all amounts and pay all the tax on the 2009 return?

Thank you!

[Steelerfan]

Thank you. To clarify, do you mean that if an employee's arrangement is out of compliance on 1/1/09 that they have to go back and amend returns from the prior years and pay the income tax. Or, does the employee report all amounts and pay all the tax on the 2009 return?

Thank you!

I don't recall anything that required amending previous returns. My understanding is that late penalties and interest would apply, but it's been a while since i looked at that guidance--hopefully more guidance on calulation of income and penalties is coming.