The following is not meant to be legal advice.
OnUnder the transition guidance (IRS Notice 2007-86), employers are given one more year to analyze all deferred compensation plans, stock rights, employment offer letters, employment agreements, severance arrangements, subject to Section 409A of the Internal Revenue Code and to make decisions on changes to bring arrangements into compliance with Section 409A regulations.
Employers will not be required to comply with the final Section 409A regulations during 2008. This means, among other relief, discounted stock options may be replaced with non-discounted stock options, if replacement occurs on or before
After 2008, if an arrangement is subject to Section 409A and does not operationally comply, then the employer and affected employees will be subject to the obligations and tax penalties. The penalties for violating Section 409A include immediate income tax inclusion, 20% federal penalty tax, and interest charges.
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