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ALERT: IRS Issues Interim Guidance under Section 457A

posted by Akin Gump

What follows is an executive summary of a tax alert released today. Read the full alert here.

On October 3, 2008, new Section 457A was added to the Internal Revenue Code by the Emergency Economic Stabilization Act of 2008. As discussed in our client alert, “New Section 457A, Which Limits Deferral of Offshore Compensation, Is Signed into Law,” Section 457A imposes significant restrictions on the ability of U.S. taxpayers to defer compensation earned from certain tax indifferent parties, including managers of offshore hedge funds. Generally, under Section 457A, taxpayers are required to include in income compensation that is deferred under a “nonqualified deferred compensation plan” of an entity (including both domestic and foreign partnerships and foreign corporations) that is not subject to a general income tax regime (a “nonqualified entity”), provided that the compensation is not subject to a “substantial risk of forfeiture.”

On January 8, 2009, the IRS released Notice 2009-8, which provides interim guidance to assist taxpayers in complying with Section 457A while the Treasury Department and the IRS consider further guidance. The Notice states that any future guidance that would expand the coverage of Section 457A will be prospective.

If you have any questions regarding this alert, please contact—