The Internal Revenue Service is allowing limited exceptions from coverage of the new deferred compensation rules for certain stock appreciation rights, or SARs, that "do not present potential for abuse or intentional circumvention of the purposes" of Section 409A.

Section 409A, added by the American Jobs Creation Act of 2004, provides new rules for nonqualified deferred compensation plans, generally applicable to amounts deferred on or after Jan. 1, 2005. IRS Notice 2005-1 also contains initial guidance regarding the termination and amendment of nonqualified deferred compensation arrangements, defines a change in ownership or control, identifies the arrangements considered deferred compensation, and outlines the new employer reporting and employment tax obligations.

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