457(f) - What is "Deferred Compensation"

[Guest shaul]

409A has a broad reach - - - one IRS official stated that the definition of deferred compensation is "frighteningly broad and deceptively simple" since it covers things like tax gross-ups, taxable medical care, etc.

Can the same be said (at least until 457(f) guidance comes out) about 457(f)? My impression is that 457(f) only covers true elective and non-elective deferrals of cash, and was never applied to things like the value of taxable medical care, reimbursements, etc.

Thanks.

[ETA Consulting LLC]

Well, the one thing we do know is that whatever the deferral is, it will become taxable in the year it is no longer subject to a substantial risk of forfeiture. So, how would taxable medical or reimbursements be subject to a risk of forfeiture?

Not sure if that addresses the issue.

Good Luck!

[Guest rjohnson]

I've dealt with this before regarding a retiring executive of a private, tax-exempt organization. We were having a tough time finding guidance on how future (lifetime) taxable medical benefits would be taxed under 457(f). We went around and around and finally got a hold of IRS counsel.

She was unsure and didn't know of any official guidance. She did say that the future medical benefits (which were taxable) should be included in the executive's gross income in the year he vests and retires. We would have to estimate an amount, include it, pay taxes, and then use section 72 to determine tax in future years with the basis being our original estimated amount. Needless to say, we figured out another way.

In any event, not sure if that gets at what you're looking for, but the IRS's apparent position is that future taxable medical benefits are subject to 457(f) and taxable in the year vested.