Section 1. Background

A. Section 409A

Section 409A was added to the Code by § 885 of the American Jobs Creation Act of 2004, Public Law 108–357 (118 Stat. 1418). 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. In addition, the amount includible in income under § 409A

2007–9 I.R.B. 625 February 26, 2007

ply in determining the amount required to be included in income. For purposes of participation in, and the relief provided by, the Program, taxpayers may assume, in the case of a violation involving a stock right, that the plan aggregation rules apply only to aggregate all amounts deferred under stock rights subject to § 409A held by the employee with respect to whom the violation occurred. In the case of an unexercised stock right, Notice 2006–79 permits the service recipient to substitute for such a stock right a stock right that is not subject to § 409A. In the case of certain stock rights granted to a service provider who was subject to the disclosure requirements of section 16(a) of the Securities Exchange Act of 1934 on the date of grant of the stock right, the substitution was required to be completed by December 31, 2006. For other service providers, the substitution must be completed by December 31, 2007. If a taxpayer utilizes the available transition rules to exclude a right to an amount (including an unexercised stock right) from coverage under § 409A, then the amount is treated as always having been excluded from coverage under § 409A. Accordingly, the amount is not required to be aggregated for purposes of determining the amount includible in income under § 409A in 2006. If the right to the amount is not excluded from coverage under § 409A by the applicable deadline, the right to the amount will remain subject to the plan aggregation rules regardless of whether the right to the amount is, or is amended to be, compliant with the requirements of § 409A. However, because a stock right may be removed from coverage under § 409A retroactively, any income inclusion under § 409A with respect to an unexercised stock right due to the plan aggregation rules will not be treated as income for any of the service provider’s taxable years before the 2007 tax year.