The IRS has issued Notice 2010-6, which contains procedures for voluntarily correcting many types of failures to comply with the document requirements that apply to nonqualified deferred compensation plans under Section 409A of the Internal Revenue Code. The Notice provides:
–clarification that certain language commonly included in plan documents will not cause a document failure;
— relief which permits correction of certain document failures without current income inclusion or additional taxes under Section 409A, so long as, in certain cases, the corrected plan provision does not affect the operation of the plan within one year following the date of correction;
–relief limiting the amount currently includible in income and the additional taxes under Section 409A for certain document failures, if correction of the failure affects the operation of the plan within one year following the date of correction;
–relief permitting correction of certain document failures without current income inclusion or additional taxes under § 409A, if the plan is generally the service recipient’s first plan of that type, and the failure is corrected within a limited period following the plan’s adoption; and
–transition relief permitting corrections of certain document failures without current income inclusion or additional taxes under Section 409A, if the document failure is corrected by December 31, 2010, and any operational failures resulting from the document failure are also corrected in accordance with IRS Notice 2008-113 by December 31, 2010.
The Notice also clarifies certain aspects of IRS Notice 2008-113, which addresses various failures of nonqualified deferred compensation plans to comply with Section 409A in operation, including clarification of:
–the application of the subsequent year correction method to late payments of amounts deferred; and
–the calculation of the amount that must be paid to the service provider as a correction of a late or ealy payment of a deferred amount, if the payment would have been made in property, such as shares of stock.