Will Tax Reform Change Code Section 409A?

By Jason Rothman, J.D.

November 10, 2017

As we discussed earlier this week, (see Proposed Tax Bill Radically Alters Nonqualified Deferred Compensation and Executive Compensation), H.R. 1 – Tax Cuts and Jobs Act (the “Bill”), took aim at executive compensation. Of significance, the limited tax deferral opportunities under the proposed rules could effectively “kill” nonqualified deferred compensation plans. Apparently, the employer community blew up House Ways and Means Committee members’ telephone lines after the Bill was released, because a second amendment to the Bill was issued, and these new rules on nonqualified deferred compensation were deleted. Thus, the Bill in its current form leaves the tax treatment of nonqualified deferred compensation unchanged.

Does that end the discussion? The answer is a big NO. The Senate has issued its version of tax reform, and it contains changes similar to the initial version of the House Bill. As noted in the Senate Committee on Finance Description of the Chairman’s Mark of the Bill, “any compensation deferred under a nonqualified deferred compensation plan is includible in the gross income of the service provider when there is no substantial risk of forfeiture of the service provider’s rights to such compensation.” This brings us back to where things stood earlier this week, and the discussion of these rules in our article continues to be accurate (at least for today).

As a reminder, with any proposed legislation, the provisions are subject to change as the legislation goes through the political process. We will continue to monitor developments and keep you informed of changes as they occur. If you have any questions about this article or generally about the Bill, please contact Jason Rothman at 216.875.1907, This email address is being protected from spambots. You need JavaScript enabled to view it., or any member of the Compensation and Rewards Practice.

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