RIA is reporting today that at a recent ALI-ABA session on Executive Compensation, Catherine Livingston Fernandez, Esq., Chief, Executive Compensation Branch in the IRS’s Office of the Associate Chief Counsel and Keith Jones, Director, Field Specialists, Large and Mid-Size Business Division (LMSB) revealed that IRS agents are already receiving training in section 409A of the Internal Revenue Code, with the first wave of audits likely to begin in 2007. Excerpt:
Since it takes about two years for returns to be filed and audits to be initiated, the first wave of Code Sec. 409A audits would begin in 2007. Mr. Jones said that IRS agents plan to audit the 2005 transition year for compliance with Code Sec. 409A . In response to an audience question, Mr. Jones said that, despite suggestions from IRS that it would go easy in the transition year, issues on which the law was clear and regulatory guidance wasn’t needed would be subject to audit for 2005.
The article goes on to note that another compliance focus for the IRS is the “failure-to-deposit penalty” having to do with the one-day rule for depositing employment taxes. According to the article, Mr. Jones is quoted as saying that “penalties amounting to tens of millions of dollars will be imposed, particularly in connection with unpaid unemployment taxes on stock options.” Other focuses of compliance include high-income taxpayers (income of $100,000 and above), travel and entertainment, and reasonable compensation.
Read more about nonqualified deferred compensation rules under new section 409A of the Code in previous posts which you can access here.