I have added Notice 2006-33 to my collection of 409A links over in the right-hand column. The Notice provides transition relief for certain nonqualified deferred compensation plans that are in violation of the requirements of Internal Revenue Code section 409A(b).
Section 409A(b) generally applies to the use of offshore trusts in connection with amounts payable under a nonqualified deferred compensation plan (“NDCP”) and also the use of restrictions on assets to protect the payment of benefits under a NDCP in connection with a change in the service recipient’s financial health. The use of such offshore trusts or restrictions on assets generally triggers the income inclusion and additional tax provisions of section 409A. The notice addresses the application of certain technical corrections made to these provisions in GOZA, (which was enacted on December 21, 2005), including the requirement that sponsors of certain plans be given a limited period during which the arrangements may be made compliant with section 409A(b).
The transition relief provided by the Notice says that, with respect to assets set aside, transferred or restricted on or before March 21, 2006 so as to be subject to inclusion under sections 409A(b)(1) or 409A(b)(2), taxpayers shall be treated as not having triggered the inclusion or additional tax provisions of section 409A(b) if the NDCP comes into conformity on or before December 31, 2007, with the requirements of section 409A(b) and any guidance issued before such date.