Big Law speaks...IRS listens

That collective sigh of relief you heard yesterday came from the community of Executive Compensation practitioners in response to the IRS extension of the 409A compliance deadline for nonqualified deferred compensation plans to December 31, 2008.

They have the Major Firms - and their clout with the IRS - to thank.

Buried deep in the 600 pages comprising the American Jobs Creation Act of 2004 (many like to say that the Act did, in fact, create jobs...for lawyers, HA!), are found 6 pages constituting 409A of the Internal Revenue Code. This section of the Code was passed to regulate the elections, distributions, and notice requirements of the nonqualified deferred compensation plans loved so much by executives. Congress passed this portion of the Act because it did not like the fact that these execs retained so much control with respect to this supposedly "deferred" compensation.

Bringing affected plans into compliance has proved to be no small task, however, because of a lack of understanding and the sheer number of affected plans. And it didn't help that the Final Regulations under 409A were just passed in April of this year. Those regulations required compliance by December 31, 2007. However, practitioners remained hopeful (and confident) that this deadline would be extended as it seemed unrealistic. Then, on September 10th, the IRS teased practitioners with Notice 2007-78, which allowed for a documentary compliance extension to December 31, 2008. Unfortunately, what really mattered, operational compliance, was not extended.

Finally, a letter was sent to the IRS signed by most major law firms asking for a realistic extension to the end of next year. The IRS listened. On Monday, Notice 2007-86 was published and, among other things, it finally extended the deadline for documentary and operational compliance until the end of next year. Until the deadline comes, plans may rely on "good-faith" compliance with the regulations.