IRS Issues Correction and Income Inclusion Guidance for Failed Section 409A Deferred Compensation Arrangements

In December 2008, the Treasury and the IRS issued guidance under 409A of the Internal Revenue Code that (i) permits certain violations of 409A to be corrected where the documents implementing the deferred compensation arrangement comply with 409A, but the arrangement is not operated in compliance with the plan documents and 409A (an "operational failure"), and (ii) describes how to calculate the deferred amounts to be included into an employee's income (even before actual payment), as well as the 20% excise tax and interest charge imposed by 409A.