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40 Cards in this Set

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Section 409A was added to the IRC by ...
section 885 of the American Jobs Creation Act of 2004.
Section 409A generally provides ...
that unless certain requirements are met, amounts deferred under a nonqualified deferred compensation plan for all taxable years are currently includible in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income.
Section 409A also includes rules applicable to certain trusts or similar arrangements associated with a NQDC plan, where ...
such arrangements are located outside of the U.S. or are restricted to the provision of benefits in connection with a decline in the financial health of the sponsor.
Final regulations generally proivde that a NQDC plan for purposes of section 409A does not include: (5)
1) a qualified plan
2) a bonafide sick leave or vacation plan
3) a disability plan
4) a death benefit plan, or
5) certain medical expense reimbursement arrangements.
With regard to medical expense reimburesments, exemptions from coverage under section 409A ...
does not apply to medical expense reimburesments that constitute taxable income to the service provider. The coverage exemption applies only to arrangements that provide benefits that are excludable from gross income under section 105 or section 106.
With regard to Section 457 Plans, 409A ...
is not applicable to an eligible deferred compensation plan under section 457(b), but may be applicable to a deferred compensation plan that is subject to 457(f).
A right to deferred compenstation generally referes to ...
a legally binding right in one taxable year to compensation that is or may be payable in a subsequent taxable year.
For purposes of determining the time of payment, the term "mayment" generally refers to
an acutal or constructive payment of cash or property.
For purpose of the short-term deferral rule, and amount is treated as paid when ...
it is included in income under section 457(f) whether or not an acutal or constructive payment occurs.
Section 409A generally does not apply to an amount deferred under an arrangement between a service provider and an unrelated service recipiant if ...
during the service proider's taxable year in which the service provider obtains a legally binding right to the deferred amount the service provider is actively engaged in teh trade or business of providing serivces (other than as an employee or as a director of a corporation, and provides significant services to two or more service recipients to which the service profider is not related and that are not related to one another.
Safe Harbor: A service provider is deemed to be providing significant services to two ore more such service recipients for this purpose if ...
the revenues generated from the services provided to any service recipient or group of related service recipients during such taxable year do not exceed 70% of the total revenues generated by the service provider from the trade or business of providing such services.
Safe Harbor: A service provider that has actualy met the 70% threshold in the three immediately previous years ...
is deemed to meet the 70% threshold for the current year, but only if at the time the amount is deferred the service provider does not know or have reason to anticipate that the service provider will fail to meet the threshold in the current year.
If an indemendent contractor qualifies for the safe harbor for exclusion from coverage under section 409A with respect to arrangements with unrelated service recipients, ...
an arrangement between the independent contractor and a service recipient related to the independent contractor will not be subject to section 409A if the arrangement, and the practice under the arrangement, are bona fide, arise in the oridnary course of business, and are substantialy the same as the arrangements and practices applicable to one or more unrelated service recipients to whom the independent contractor provides substantial services and that produce a majority of the total revenue that the independent contractor earns from the trade or business of providing such serivces during the year.
If at the time the legally binding right to the payment arose, the arrangement was not subject to section 409A, ...
the amount deferred under the arrangement during that taxable year (and earnings credited to the deferred amount) will not become subject to section 409A in a later year if the service provider becomes an employee, independent contractor, or other type of service provider subject to the rules of section 409A.
If a principal purpose of a plan is to achieve a result with respect to a deferral of compensation tahtis inconsistent with the purposes of section 409A, ...
the Commissioner may treat the plan as nonqualified deferred compensation plan for purposes of section 409A.
A plan generally provides for the deferral of compensation if ...
under its terms and the relevant facts and circumstances, a service provider has a legally binding right during a taxable year to compneation taht, pursuant to its terms, is or may be payable to (or on behalf of) the service provider in a later year.
An amount is generally payble ...
at the time the service proider has a right to currently receive a transfer of cash or property, including a transfer of property includible in income under section 83, the economic benefit doctrine or section 402(b).
Any erly payment of the deferred compensation (or any right to receive such an early payment) generally would constitute ...
an impermissible acceleration of the payment of the deferred amount.
A plan will be treated as providing for a payment to be made in a subsequent year under 2 conditions:
1) the plan explicitly so provides (including though a service provider election); or 2) the deferral condition is inherent in the terms of the contract.
Where the parties have agreed that a payment will be made upon an event that could occur after the year in which the legally binding right ot the payment arises, ...
the plan generally will provide for a deferall of compensation (unless otherwise excluded under a specific exception, such as the short-term deferral rule).
If a plan provides a service provider a right to a payment upon separation from service, the plan generally will ...
result in a deferral of compensation regardless of whether the service provider separates from service and receives the payment in the same year as the grant, because under the plan the payment is conditioned upon an event that may occur afte rthe year in which the legally binding right ot the payment arises.
If an arrangemetn such as a stock option or stock appreciation right not otherwise excluded from coverage under section 409A provides a right ot a payment for a term of years where the payment could be received during the short-term deferral period or a subsequent period but is not otherwise includible in income until paid, ...
the arrangement will proivide for deffered compensation even though the service provider could receive the payment during the short-term deferral period 9for example, by exercising the stock option or stock appreciation right.
Where a plan does not specify a payment date, payment event, or term of years, ...
the plan generally will not provide for the deferral of compensation if the service provider actually or constructively receives the payment within the short-term deferral period.
A legally binding right obtained in one year to a payment in a subsequent year in connection with a noncompetition agreement generally would constitute deferred compensation because
such a payment would occur in connection with the performance or nonperformance of services, and a covenant not to compete does not create a substantial risk of forfeiture for puroses of section 409A.
A legally binding right includes: (2)
1) a contractual right that is enforceable under the applicable law or laws governing the contract; and 2) an enforceable right created under other applicable law, such as a statute.
Under the short-term deferral rule, a deferral of compnesation does not occur for the purposes of 409A if
the arrangement under which a payment is made does not provide for a deferred payment and the payment is made no later than the 15th day of the third month following the later of the end of the service provider's taxable year or the end of the service recipiant's taxable year in which occurs the later of the time the legally binding right to the payment arises or the time such right first ceases to be subject to a substantial risk of forfeiture (subject ot certian extensions for unforeseeable events.)
For the purpose of the short-term deferral rule, an arrangement provides for a deffered payment if it provides for a payment that
will be made or completed after a date or an event that will or may occur later than the end of the 2 1/2 month period, either b/c of an affirmative election on the part of the service provider or service recipient or a deferral condition inherent in the terms of the contract (for example, taht the amount will be paid upon the service provider's speration from service, which may occur in a future year).
With regard to the short-term deferral rule, a payment could be delayed if
payment would jeopardize the ability of the service recipient to continue as a going concern.
With regard to multiple payments and the short-term deferral rule, the short-term deferral rule applies ...
separately to each payment, applying the technical definition of "payment" set out in the regs, provided that the entire payment is made during the short-term deferral period.
With regard to multiple payments and the short-term deferral rule,where a payment has been designated as a seperate payment, ...
it may qualify as a short-term deferral (and thus not deferred compensation) even where the service provider has a right to subsequent payments under the same arrangement.
With regard to multiple payments and the short-term deferral rule, where a payment has not been designated a sa separate payment (such as, for example, a life annuity payment or a series of installment payments treated as a single payment), ...
any initial payments in the series will not be treated as a short-term deferral even if paid within the short-term deferral period.
Generally, does the risk that a service provider will fail to incure a reimbursable expense qualify as a substntial risk of forfeiture?
No.
The short-term deferral rule does not provide an exclusion from the requirements of section 409A for current-year benefit accruals because
the rule does not apply to amounts of compensation subject to a deferral election.
An election to defer includes either:
1) an affirmative election on the part of the service provider or 2)a deferral condition inherent in the terms of the contract.
With regard to the short term deferral rule, where the parties have agreed that a payment will be made upon an event that does not necessariloy coincide with the lapsing of the substantial risk of forfeiture, and could occur at a time beyond the short-term deferral period, then
the arrangement provides for a deferral election such that the short-term deferral rule does not apply.
Because the benefits accrued in the final year of the SERP could have bene paid upon an event occurring after the shrt-term deferral period (if, for example, the individual had not separated from survice until a later year), then
the payment fo the benefit accrued in the final year is subject to section 409A and is not a short-term deferral, even if paid by March 15 of the year following the separation from service.
If a plan that is not subject to sections 457(f) provides that an amount is subject to substantial risk of forfeiture until the completeion of three years of service, and ispayable upon a separation of serive following the three years of service, then (result & rational)
the right to the amount is not a short-term deferral even if the service provider separates from service immediately after vesting int he right, b/c under the plan the payment is based upon an even other than the lapsing of the substantial risk of forfeiture and such event may occur in a year subsequent to the year in shich the risk of forfeiture lapses.
Where a plan specifies no payment date or payment event, or specifies only the date at which the substanial risk of forfeiture lapses, then
the plan may qualify for the short-term deferral rule if the payment is made within the applicable short-term deferral period. However, the plan generally would violate section 409A if the payment were made after the short-term deferral period.
The short-term deferral rule does not apply if
the payment event or date is specified and will or may occur after the end of the short-term deferral period.
Where a plan requires that a payment be made on a date w/in the short-term deferral period, but the payment is made after the specified date and after the end of the short-term deferral period, ...
the arrangement will be treated as a nonqualified deferred compnsation plan, but the payment date will be treated as a specified date.