Accelerating Payments under Short Term Deferral Exception

We have a payment that is supposed to be paid 10 days after vesting, so it is subject to the short term deferral exception.  We want to accelerate the vesting, which would mean we are accelerating the payment as well, but it will still be subject to the short term deferral exception.

I believe I recall some guidance saying this still violates the anti-acceleration rules even though at no time was it technically deferred compensation (since it was under the exception in both cases), but it's not in the regulations.  Does anyone know if I'm correct that this guidance is out there, and does anyone know where this guidance can be found?

I wouldn't touch 409A with a 10-foot pole.  The potential penalties and malpractice damages are simply too high, and it is extremely complicated.  Many malpractice insurers won't cover the damages.  Tell  your client to talk to a lawyer who knows this area.  

FWIW, this is from the ABA Employee Benefits Committee IRS Q&A in May 2009:

32. § 409A – Short-Term Deferral Exclusion If a payment satisfies the short-term deferral exception to Treasury Regulation Section 1.409A-1(b)(4), may the parties subsequently adjust the amount and timing of payments?

Proposed Response: Yes. If the short-term deferral exception applies to the original arrangement, then such arrangement is excluded from Section 409A. The original arrangement may therefore be modified provided that the modified arrangement also qualifies for exception to Section 409A under the short-term deferral rule.

IRS Response: Yes, but other tax doctrines such as constructive receipt continue to apply.

This is done all the time and does not violate 409A. The 409A regs state that the acceleration of vesting cannot accelerate the time of payment, and some are confused by that statement in the regs, but it only applies where the arrangement does in fact constitute NQDC, e.g., I have an arrangement that says, "I credit $100x to an account for you every year for 3 years, and you are 0% vested until the close of the third year, and then you are 100% vested, and you get paid $300x at the end of the fifth year." That arrangement is NQDC subject to 409A, because it doesn't pay out within the STD period after the third year. If I then accelerate the vesting to 100% at the end of the first year, the acceleration of vesting does not violate 409A, as stated in the reg, but the service provider can't get paid until the end of the fifth year without violating 409A, as also stated in the reg.

If your arrangement says, "You vest on X date or event, and then you get paid 10 days after vesting," and then you want to vest the person today based on exercise of discretion and pay within 10 days of vesting, then that is not in 409A to begin with, and the acceleration of vesting (which indirectly accelerates the payment), is OK, as EBECatty states.