What Is Section 409a

Section 409a of the tax code doesn t specifically define fair market value other provisions of the code define it as the price at which the company would be bought and sold.

What is section 409a. We are not attorneys so we will leave the legal minutiae of that definition for others to grapple with noting only that generally speaking a deferred compensation plan is an arrangement whereby an employee service provider in 409a parlance receives compensation in a later tax year. This is different from deferred. 1 2016 to may 31 2017 she earns.

108 357 provided the following. What is irc section 409a. What does section 409a do.

The 409a creates a framework for private companies to follow when valuing private stock. Not later than 90 days after the date of the enactment of this act the secretary of the treasury shall issue guidance on what constitutes a change in ownership or effective control for purposes of section 409a of the internal revenue code of 1986 as added by this section. Service recipients are generally employers but those who hire independent contractors are also service recipients.

In response to the 2001 enron scandal regulators looked for ways to prevent executives from taking advantage of equity loopholes. The main function of section 409a is to govern the timing of when deferred compensation can be paid. Basically under 409a a nqdc plan is defined broadly as compensation or a legally binding right to compensation that is promised to be paid to participants in a subsequent plan year fogleman says.

This is referred to as nonqualified deferred compensation. Teachers salaries are non qualified compensation plans that meet the requirements of irc section 409a. Notwithstanding section 885 d 1 of the american jobs creation act of 2004 pub.

In part section 409a was created in response to executives from. Section 409a of the united states internal revenue code regulates nonqualified deferred compensation paid by a service recipient to a service provider by generally imposing a 20 excise tax when certain design or operational rules contained in the section are violated. Section 409a applies to all companies offering nonqualified deferred compensation plans to employees.