Constructive Receipt

[Guest Salvador A Mander]

Plan states that employee who is president and sole shareholder of solvent company may elect to receive $5,000 this year or upon separation from services, as an award for prior services performed.

Is this a deferred comp plan with a prohibited acceleration clause, or is it NOT a deferred compensation plan because it's constructively received simultaneous with the establishment of the plan?

In other words, is it possible to have a deferred compensation plan where the amount to be paid is undoubtedly constructively received when the plan was created?

A strict reading of 1.409A-1(b) suggests that it is possible (focuses on payment, not timing of taxable income; see also preamble at 19235, third column). However, another sentence in that section may indicate otherwise: "A LBR to an amount that will be excluded from income when and if received does not constitute a deferral of compensation[.]"

I read this language as NOT suggesting that amounts which can be paid in a later year but which are incapable of being tax-deferred escape section 409A.

Does anyone agree or disagree?