The Internal Revenue Service and the Treasury Department issued a notice that allows taxpayers to make corrections for operational failures in complying with rules for nonqualified deferred compensation, but only when the failures are unintentional.

Notice 2007-100 provides relief for certain operational failures that are corrected in the same year. The notice also provides transition relief through 2010 for operational failures up to a certain amount that are not corrected in the same taxable year by limiting the amount of income inclusion and additional taxes.

In addition, the notice describes and requests comments on a potential expanded program that would limit the income inclusion and additional taxes under Section 409A for certain operational failures involving larger amounts. Section 409A was signed into law as part of the American Jobs Creation Act in 2004 to address concerns over reported abuses in nonqualified deferred compensation plans.

If an unintentional operational failure to comply occurs, but the operational failure is corrected, no amount is required to be included in income under the section as a result of the failure. Relief is not available with respect to any intentional failure to comply with the terms of a plan or the requirements of Section 409A in the operation of a plan. In addition, relief is not available with respect to any exercise of a stock right that otherwise would result in a failure to comply with Section 409A.

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