The following is not meant to be legal advice.
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SARs will be exempt from Section 409A if, among other requirements, the shares covered by the SAR qualify as service recipient stock; the exercise price of the SAR at least equals 100 percent of the fair market value of the covered shares on the date the SAR is granted.
The final regulations exclude Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code, and options granted under an employee stock purchase plan as described in Section 423 of the Internal Revenue Code.
Under Section 409A, amounts deferred under a nonqualified deferred compensation plan are includible in gross income unless such amounts are subject to forfeiture. Deferred amounts are subject to an additional 20 percent federal income tax, interest, and penalties.
A stock right includes a deferral feature, making it subject to Section 409A, when it provides a right other than the right to receive cash or stock on the date of exercise, and the right would allow the deferral of compensation beyond the date of exercise.
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