IRS Establishes Corrections Program to Cure Deferred Compensation Defects Under Code Section 409A
On January 5, 2010, the IRS issued Notice 2010-6 (the “Notice”), which establishes a corrections program for certain inadvertent instances of documentary noncompliance involving deferred compensation arrangements subject to Section 409A of the Internal Revenue Code (“Section 409A”). The Notice complements and clarifies certain aspects of the IRS’ previously issued Notice 2008-13, which provided a means for correcting certain operational failures under Section 409A. Additionally, the Notice provides that certain ambiguous terms contained in deferred compensation arrangements will not automatically be regarded as a documentary failure and generally may be clarified without penalty. Finally, the Notice provides transition relief for certain types of corrections until December 31, 2010 and December 31, 2011, depending on the type of defect being corrected. While the correction methods described under the Notice provide a mechanism for correcting documentary failures with reduced penalties (or no penalties, in some cases), some taxpayers may still be reluctant to utilize the Notice in light of its requirements to notify the IRS of the defects.