New IRC Section 457A Prohibits Deferral of Compensation Paid by Offshore Funds and Certain Partnerships
The Emergency Economic Stabilization Act added Section 457A to the U.S. Internal Revenue Code. Section 457A (1) ends the deferral of vested compensation paid by offshore investment funds and certain other tax indifferent entities attributable to services performed for such entities after 2008 and (2) provides that vested deferred compensation payable by such funds and entities attributable to services performed before 2009 must be restructured to become taxable by no later than December 31, 2017. Although Section 457A was intended to target income deferral by managers of offshore hedge funds, nonqualified deferred compensation arrangements maintained by both foreign and domestic partnerships (including limited liability companies taxed as partnerships) are also covered unless substantially all of the partners of such entities are subject to comprehensive income taxation.