§409A: Rules On Deferred Compensation, Severance Pay

In this article Wendi S. Lazar, counsel at Outten & Golden, reviews the final regulations adopted to implement Section 409A of the Internal Revenue Code (“409A”), which imposes complex taxation rules on executives’ deferred compensation. (May 17, 2007). 409A applies to compensation of employees, equity pay arrangements, bonus and other kinds of deferrals and to separation pay. The article emphasizes the importance of 409A to employees’ attorneys: if a compensation package violates it, it is the employee who is liable for substantial tax penalties. It is therefore crucial for executives to retain their own attorneys or tax experts to review compensation packages before they agree to them and not to rely on employers to perform this due diligence for them.

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