Internal Revenue Bulletin 2008-51 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
8-51
December 22, 200
8
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2008–104, page 1298.
This notice provides additional transition relief with respect to
the use of debit cards for medical expense reimbursements at
stores with the Drug Stores and Pharmacies merchant cate-
gory code. Notice 2007–2 modified.
Notice 2008–111, page 1299.
This notice clarifies Notice 2001–16, 2001–1 C.B. 730, and
supersedes Notice 2008–20, 2008–6 I.R.B. 406, regarding
Intermediary Transaction Tax Shelters. A transaction is treated
as an Intermediary Transaction with respect to a particular per-
son only if that person engages in the transaction pursuant to
a plan, the transaction contains the four objective components
indicative of an Intermediary Transaction, and no safe harbor
exception applies to that person. Notice 2001–16 clarified.
Notice 2008–20 superseded.
EMPLOYEE PLANS
REG–148326–05, page 1325.
Proposed regulations address the calculation of amounts in-
cludible in income under section 409A(a) of the Code and the
additional taxes imposed by such section with respect to a ser-
vice provider participating in a nonqualified deferred compen-
sation plan if such plan fails to meet the requirements of section
409A(a). A public hearing is scheduled for April 2, 2009.
Notice 2008–112, page 1301.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for planyears beginning in December
2008; the 24-month average segment rates; the funding tran-
sitional segment rates applicable for December 2008; and the
minimum present value transitional rates for November 2008.
Notice 2008–113, page 1305.
This notice provides taxpayers the ability to correct certain op-
erational failures to comply with section 409A of the Code, or
to limit the amount of additional taxes due to a failure to comply
with section 409A. Section 409A provides rules governing the
taxation of nonqualified deferred compensation plans. Notices
2006–100 and 2007–89 modified. Notice 2007–100 obso-
leted.
EMPLOYMENT TAX
Notice 2008–114, page 1322.
This notice provides tables that show the amount of an indi-
vidual’s wages, salary, or other income that is exempt from a
notice of levy used to collect delinquent tax in 2009.
(Continued on the next page)
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 1351.
Finding Lists begin on page ii.

EXCISE TAX
Notice 2008–110, page 1298.
Biodiesel tax incentive; cellulosic biofuel producer
credit.For purposes of the tax incentives for biodiesel under
sections 40A, 6426, and 6427(e) of the Code, a liquid must
meet the standard set in ASTM D6751. ASTM International,
the private organization that defines that standard, issued a
revised standard effective October 13, 2008. This notice
provides transitional relief for biodiesel on hand that was
produced under the old ASTM D6751 standard. Separately,
this notice provides rules for registration of producers of
cellulosic biofuel.
ADMINISTRATIVE
Announcement 2008–122, page 1351.
This document provides notice of a public hearing on proposed
regulations (REG–140029–07, 2008–40 I.R.B. 828) relating to
the substantiation and reporting requirements for cash and non-
cash charitable contributions under section 170 of the Code.
The regulations reflect the enactment of provisions of the Amer-
ican Jobs Creation Act of 2004 and the Pension Protection Act
of 2006. The regulations provide guidance to individuals, part-
nerships, and corporations that make charitable contributions,
and will affect any donor claiming a deduction for a charitable
contribution after the date these regulations are published as
final regulations in the Federal Register. The public hearing is
scheduled for January 23, 2009.
December 22, 20082008–51 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2008–51 I.R.B.December 22, 2008

December 22, 20082008–51 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 105.—
Amounts
Received Unde
r Accident
and Health Pla
ns
A notice provi
des additional transition relief with
respect to the
use of debit cards for medical expense
reimbursemen
ts at stores with the Drug Stores and
Pharmacies me
rchant category code. See Notice
2008-104, pag
e 1298.
2008–51 I.R.B.1297December 22, 2008

Part III. Administrative, Procedural, and Miscellaneous
Additional Transition Relief
With Respect to Debit
Cards and Medical Expense
Reimbursements
Notice 2008–104
PURPOSE
This notice provides additional transi-
tion relief with respect to the use of debit
cards for medical expense reimbursements
at stores with the Drug Stores and Pharma-
cies merchant category code.
BACKGROUND
Notice 2007–2, 2007–1 C.B. 254, pro-
vides that after December 31, 2008, health
FSA and HRA debit cards may not be used
at stores with the Drug Stores and Phar-
macies merchant category code unless: (1)
the store participates in the inventory in-
formation approval system as described in
Notice 2006–69, 2006–2 C.B. 107, or (2)
on a store location by store location ba-
sis, 90 percent of the store’s gross receipts
during the prior taxable year consisted of
items which qualify as expenses for medi-
cal care under § 213(d) (including nonpre-
scription medications as described in Rev.
Rul. 2003–102, 2003–2 C.B. 559).
For transactions using debit cards at
stores that meet the 90 percent rule de-
scribed in (2) above, employers must treat
all charges to the debit card as conditional
(other than copayment matches, recurring
expenses, and real-time substantiation as
described in Rev. Rul. 2003–43, 2003–1
C.B. 935) pending substantiation of the
charges through additional independent
third-party information describing the
goods or services, the date of the service
or sale, and the amount of the charge.
TRANSITION RELIEF
The deadline in Notice 2007–2 is ex-
tended by six months so that, after June
30, 2009, health FSA and HRA debit cards
may not be used at stores with the Drug
Stores and Pharmacies merchant category
code unless the requirements of (1) or (2)
above are satisfied.
EFFECT ON OTHER DOCUMENTS
Notice 2007–2, 2007–1 C.B. 254, is
modified.
DRAFTING INFORMATION
The principal author of this notice is
Stephanie L. Caden of the Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
For further information regarding this no-
tice, contact Ms. Caden at (202) 622–6080
(not a toll-free call).
Biodiesel Tax Incentive;
Cellulosic Biofuel Producer
Credit
Notice 2008–110
SECTION 1. PURPOSE
This notice provides guidance on the
changes to the biodiesel tax incentives
(§§ 40A, 6426, and 6427(e) of the Internal
Revenue Code) resulting from a revision
to the requirements of the American So-
ciety of Testing and Materials standard
D6751 (ASTM D6751). This notice also
provides guidance on the cellulosic bio-
fuel producer credit under section 40,
which was added to the Code by the Food,
Conservation, and Energy Act of 2008
(Pub. L. 110–234) (the Food Act).
SECTION 2. BIODIESEL; ASTM
STANDARD
(a)Overview. (1) Sections 40A, 6426,
and 6427(e) of the Code provide tax incen-
tives for the production, sale, and use of
biodiesel and biodiesel mixtures. Section
40A(d)(1) definesbiodieselas monoalkyl
esters of long chain fatty acids derived
from plant or animal matter which meet—
(i) The registration requirements for fu-
els and fuel additives established by the
Environmental Protection Agency under
section 211 of the Clean Air Act (42 U.S.C.
7545), and
(ii) The requirements of ASTM D6751.
(2) Section 6426(c)(4) of the Code
disallows the biodiesel mixture credit of
§ 6426 unless the producer of the mixture
obtains a certificate, in such form and man-
ner as prescribed by the Secretary, from
the producer of the biodiesel that identifies
the product produced and the percentage
of biodiesel and agri-biodiesel in the prod-
uct. Section 40A(b)(4) provides a similar
rule for the biodiesel mixture credit and
biodiesel credit allowed by § 40A.
(3) Notice 2005–62, 2005–2 C.B. 443,
provides a model certificate for this pur-
pose. In completing this certificate, a
biodiesel producer certifies, among other
things, that the biodiesel it has produced
and sold meets the requirements of ASTM
D6751.
(4) The forms on which taxpayers
claim the biodiesel incentives (Form 8864
(Biodiesel and Renewable Diesel Fuels
Credit), Form 720 (Quarterly Federal Ex-
cise Tax Return),andForm8849(Claim
for Refund of Excise Taxes)) require the
claimant to certify that the claim relates to
biodiesel that meets the requirements of
ASTM D6751.
(b)Revised Specification for Biodiesel;
ASTM D6751.Effective on October 13,
2008, the American Society of Testing
and Materials revised the requirements
of ASTM D6751 by adding a cold soak
filtration test for biodiesel (the October
13, 2008 revision).
(c)Transitional rule.If a claim relates
to production, sale, or use of biodiesel or a
biodiesel mixture and the production, sale,
or use occurs before April 1, 2009, a certi-
fication that the biodiesel covered by the
claim meets the requirements of ASTM
D6751 is valid if the biodiesel meets the
requirements of ASTM D6751 as in effect
either before or after the October 13, 2008,
revision adding the cold soak filtration test
for biodiesel. If a claim relates to produc-
tion, sale, or use of biodiesel or a biodiesel
mixture and the production, sale, or use oc-
curs after April 1, 2009, a certification that
the biodiesel covered by the claim meets
the requirements of ASTM D6751 is valid
only if the biodiesel satisfies the require-
ments of ASTM D6751 as in effect after
the October 13, 2008, revision adding the
cold soak filtration test for biodiesel.
December 22, 200812982008–51 I.R.B.

SECTION 3. CELLULOSIC
BIOFUEL PRODUCER CREDIT
(a)Overview.Section 15321 of the
Food Act provides for a cellulosic biofuel
producer credit under § 40 of the Code.
The credit is allowed to a taxpayer for cel-
lulosic biofuel that the taxpayer produces
after December 31, 2008, and before Jan-
uary 1, 2013, and sells for use or uses for
a purpose described in § 40(b)(6)(C).
(b)Definition. (1) Section 40(b)(6)(E)
provides thatcellulosic biofuelmeans any
liquid fuel (other than low-proof alcohol)
which—
(i) Is produced from any lignocellulosic
or hemicellulosic matter that is available
on a renewable or recurring basis, and
(ii) Meets the registration requirements
for fuels and fuel additives established
by the Environmental Protection Agency
under section 211 of the Clean Air Act
(42 U.S.C. 7545).
(2) For purposes of paragraph (b)(1) of
this section, low-proof alcohol is any al-
cohol with a proof of less than 150. The
determination of the proof of any alcohol
shall be made without regard to any added
denaturants.
(c)Registration—(1)In general. Sec-
tion 40(b)(6)(G) of the Code provides that
the cellulosic biofuel credit under § 40 is
not allowed with respect to any taxpayer
unless the taxpayer is registered with the
Secretary as a producerof cellulosic bio-
fuel under § 4101.
(2)Application for Registration.Tax-
payers shall apply for registration as a pro-
ducer of cellulosic biofuel on Form 637,
Application for Registration (For Certain
Excise Tax Activities), in accordance with
the instructions for that form. As provided
in § 48.4101–1(a)(2) of the Manufactur-
ers and Retailers Excise Tax Regulations,
apersonisregisteredunder§4101onlyif
the Service has issued a registration letter
to the person.
(3)Requirements.The Service will reg-
ister an applicant as a producer of cellu-
losic biofuel only if the Service—
(1) Determines that the applicant is a
producer of cellulosic biofuel or is likely
to become a producer of cellulosic biofuel
within a reasonable time after being regis-
tered under § 4101; and
(2) Is satisfied with the filing, de-
posit, payment, reporting, and claim his-
tory for all federal taxes of the applicant
andanyrelatedperson(asdefinedin
§ 48.4101–1(b)(5)).
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Jennifer C. Bernardini of the Office of the
Associate Chief Counsel (Passthroughs
& Special Industries).For further
information regarding this notice, contact
Jennifer C. Bernardini at (202) 622–3110
(not a toll-free call).
Intermediary Transaction Tax
Shelters
Notice 2008–111
SECTION 1. PURPOSE AND
BACKGROUND
This notice clarifies Notice 2001–16,
2001–1 C.B. 730, and supersedes Notice
2008–20, 2008–6 I.R.B. 406, regarding In-
termediary Transaction Tax Shelters. No-
tice 2001–16 identified the Intermediary
Transaction Tax Shelter (hereafter, an “In-
termediary Transaction”) as a listed trans-
action under § 1.6011–4(b)(2) of the In-
come Tax Regulations. For purposes of
this notice, an Intermediary Transaction is
definedintermsofitsplanandinterms
of more objective components. Under this
notice, a transaction is treated as an Inter-
mediary Transaction with respect to a par-
ticular person only if that person engages
in the transaction pursuant to the Plan (as
defined in sections 2 and 4), the transaction
contains the four objective components in-
dicative of an Intermediary Transaction set
forth in section 3, and no safe harbor ex-
ception in section 5 applies to that per-
son. A transaction may be an Intermedi-
ary Transaction with respect to one per-
sonandnotbeanIntermediaryTransaction
with respect to another person. This notice
does not affect the legal determination of
whether a person’s treatment of the trans-
action is proper or whether such person is
liable, at law or in equity, as a transferee of
property in respect of the unpaid tax obli-
gation described in section 3.
SECTION 2. DEFINITION OF THE
PLAN
An Intermediary Transaction involves
a corporation (T) that would have a Fed-
eral income tax obligation with respect to
the disposition of assets the sale of which
would result in taxablegain (Built-in Gain
Assets) in a transaction that would afford
the acquiror or acquirors (Y) a cost or fair
market value basis in the assets. An Inter-
mediaryTransactionisstructuredtocause
the tax obligation for the taxable disposi-
tion of the Built-in Gain Assets to arise, in
connection with the disposition by share-
holders of T (X) of all or a controlling
interest in T’s stock, under circumstances
where the person or persons primarily li-
able for any Federal income tax obliga-
tion with respect to the disposition of the
Built-in Gain Assets will not pay that tax
(hereafter, the Plan). This plan can be ef-
fectuated regardless of the order in which
T’s stock or assets are disposed. A transac-
tion is not an Intermediary Transaction for
purposes of this notice if there is neither
any X nor any Y engaging in the transac-
tion pursuant to the Plan (as defined in sec-
tion 4).
SECTION 3. COMPONENTS OF AN
INTERMEDIARY TRANSACTION
There are four components of an In-
termediary Transaction, and a transaction
must have all four components to be the
same as or substantially similar to the
listed transaction described in Notice
2001–16, even if the transaction is en-
gaged in pursuant to the Plan. The four
components are:
1. A corporation (T) directly or indi-
rectly (e.g., through a pass-through entity
or a member of a consolidated group of
which T is a member) owns assets the sale
of which would result in taxable gain (T’s
Built-in Gain Assets) and, as of the Stock
Disposition Date (as defined in compo-
nent two), T (or the consolidated group of
which T is a member) has insufficient tax
benefits to eliminate or offset such taxable
gain (or the tax) in whole. The tax that
would result from such sale is hereinafter
referred to as T’s Built-in Tax. However,
for purposes of this component, T will not
be considered to have any Built-in Tax
if, on the Stock Disposition Date, such
amount is less than five percent of the
2008–51 I.R.B.1299December 22, 2008

value of the T stock disposed of in the
StockDisposition(asdefinedincompo-
nent two). In determining whether T’s
(or the consolidated group’s) tax bene-
fits are insufficient for purposes of the
first sentence, the following tax benefits
shall be excluded: (i) any tax benefits
attributable to a listed transaction under
§ 1.6011–4(b)(2), and (ii) any tax benefits
attributable to built-in loss property ac-
quired within 12 months before any Stock
Disposition described in component two,
to the extent such built-in losses exceed
built-in gains in property acquired in the
same transaction(s). All references to T in
this notice include successors to T.
2. At least 80 percent of the T stock
(by vote or value) is disposed of by T’s
shareholder(s) (X), other than in liquida-
tion of T, in one or more related transac-
tions within a 12 month period (Stock Dis-
position). The first date on which at least
80 percent of the T stock (by vote or value)
has been disposed of by X in a Stock Dis-
position is the Stock Disposition Date.
3. Either within 12 months before, si-
multaneously, or within 12 months after
the Stock Disposition Date, at least 65 per-
cent (by value) of T’s Built-in Gain As-
sets are disposed of (Sold T Assets) to one
or more buyers (Y) in one or more trans-
actions in which gain is recognized with
respect to the Sold T Assets. For pur-
poses of this component, transactions in
which T disposes of all or part of its as-
sets to either another member of the con-
trolled group of corporations (as defined
in§1563)ofwhichTisamember,ora
partnership in which members of such con-
trolled group satisfy the requirements of
§1.368–1(d)(4)(iii)(B), will be disregarded
providedthereisnoplantodisposeofat
least 65 percent (by value) of T’s Built-in
Gain Assets to one or more persons that are
not members of such controlled group, or
to partnerships not described herein.
4. At least half of T’s Built-in Tax that
would otherwise result from the disposi-
tion of the Sold T Assets is purportedly off-
set or avoided or not paid.
SECTION 4. ENGAGING IN THE
TRANSACTION PURSUANT TO THE
PLAN
A transaction that has all four compo-
nents described in section 3 is only an In-
termediary Transaction with respect to a
person that engages in the transaction pur-
suant to the Plan. A person engages in the
transaction pursuant to the Plan if the per-
son knows or has reason to know the trans-
action is structured to effectuate the Plan.
Additionally, any X that is at least a 5%
shareholder of T (by vote or value), or any
X that is an officer or director of T, engages
in the transaction pursuant to the Plan if
any of the following knows or has reason
to know the transaction is structured to ef-
fectuate the Plan: (i) any officer or director
of T; (ii) any of T’s advisors engaged by T
to advise T or X with respect to the transac-
tion; or (iii) any advisor of that X engaged
by that X to advise it with respect to the
transaction. For purposes of this section, if
T has more than five officers then the term
“officer” shall be limited to the chief ex-
ecutive officer of T (or an individual act-
ing in such capacity) and the four highest
compensated officers for the taxable year
(other than the chief executive officer or
an individual acting in such capacity). A
person can engage in the transaction pur-
suant to the Plan even if it does not under-
stand the mechanics of how the tax liability
purportedly might be offset or avoided, or
the specific financialarrangements, or re-
lationships of other parties or of T after the
Stock Disposition.
A person will not be treated as engag-
ing in the transaction pursuant to the Plan
merely because it has been offered attrac-
tive pricing terms by the opposite party to
a transaction.
Thus, a transaction may be an Inter-
mediary Transaction with respect to X but
not Y, or with respect to Y but not X, in
situations where one party engages in the
transaction pursuant to the Plan and the
other does not. A transaction may also
be an Intermediary Transaction with re-
spect to some but not all Xs and/or some
but not all Ys, depending on whether they
engage in the transaction pursuant to the
Plan. A transaction will not be an Inter-
mediary Transaction with respect to any
person that does not engage in the transac-
tion pursuant to the Plan regardless of the
amounts reported on any return.
SECTION 5. SAFE HARBOR
EXCEPTIONS FOR CERTAIN
PERSONS; PARTICIPATION
GENERALLY
01. Safe Harbor Exceptions for Certain
Persons
A transaction is not an Intermediary
Transaction with respect to the follow-
ing persons under the following circum-
stances:
•Any X, if the only T stock it disposes
of is traded on an established secu-
rities market (within the meaning of
§ 1.453–3(d)(4)) and prior to the dis-
position X (including related persons
described in section 267(b) or 707(b))
did not hold five percent (or more) by
vote or value of any class of T stock
disposed of by X.
•AnyX,T,orM,if,aftertheacquisi-
tion of the T stock, the acquiror of the T
stock is the issuer of stock or securities
thatarepubliclytradedonanestab-
lished securities market in the United
States, or is consolidated for financial
reportingpurposeswithsuchanissuer.
•Any Y, if the only Sold T Assets it
acquires are either (i) securities (as
defined in section 475(c)(2)) that
are traded on an established secu-
rities market (within the meaning
of § 1.453–3(d)(4)) and represent a
less-than-five-percent interest in that
class of security, or (ii) assets that
are not securities and do not include
a trade or business as described in
§ 1.1060–1(b)(2).
02. Participation
If one of the foregoing safe harbor ex-
ceptions does not apply to a person, that
person engaged in a transaction pursuant
to the Plan, and the transaction has all four
components described in section 3, the de-
termination of whether the person partic-
ipated in an Intermediary Transaction for
purposes of § 1.6011–4 in any given tax-
able year is made under the general rule in
§ 1.6011–4(c)(3)(i)(A).
December 22, 200813002008–51 I.R.B.

SECTION 6. EFFECTIVE DATE;
DISCLOSURE, LIST MAINTENANCE,
AND REGISTRATION
REQUIREMENTS; PENALTIES;
OTHER CONSIDERATIONS
Transactions that are the same as,
or substantially similar to, the transac-
tion described in Notice 2001–16 were
identified as “listed transactions” under
§ 1.6011–4(b)(2) effective January 19,
2001. Accordingly, this notice is gener-
ally effective January 19, 2001. However,
this notice imposes no requirements with
respect to any obligation under § 6011,
§ 6111, or § 6112 due before December
1, 2008, not otherwise imposed by Notice
2001–16. Because thisnotice supersedes
Notice 2008–20, any disclosure filed pur-
suant to Notice 2008–20 will be treated
as made pursuant to Notice 2001–16. In-
dependent of their classification as listed
transactions, transactions that are the same
as, or substantially similar to, the trans-
action described in Notice 2001–16 may
already be subject to the requirements of
§ 6011, § 6111, or § 6112, or the regula-
tions thereunder.
Persons required to disclose these trans-
actions under § 1.6011–4 and who fail to
do so may be subject to the penalty un-
der § 6707A. Persons required to disclose
or register these transactions under § 6111
who have failed to do so may be subject
to the penalty under § 6707(a). Persons
required to maintain lists of investors un-
der § 6112 who fail to provide such lists
when requested by the Service may be sub-
ject to the penalty under § 6708(a). A per-
son that is a tax-exempt entity within the
meaning of § 4965(c), or an entity man-
ager within the meaning of § 4965(d), may
be subject to excise tax, disclosure, fil-
ing or payment obligations under § 4965,
§ 6033(a)(2), § 6011, and § 6071. Some
taxable parties may be subject to disclo-
sure obligations under § 6011(g) that ap-
ply to “prohibited tax shelter transactions”
as defined by § 4965(e) (including listed
transactions).
In addition, the Service may impose
other penalties on persons involved in this
transaction or substantially similar trans-
actions (including an accuracy-related
penalty under § 6662 or 6662A) and, as
applicable, on persons who participate in
the promotion or reporting of this transac-
tion or substantially similar transactions
(including the return preparer penalty un-
der § 6694, the promoter penalty under
§ 6700, and the aiding and abetting penalty
under § 6701).
Further, under § 6501(c)(10), the pe-
riod of limitations on assessment may be
extended beyond the general three-year
period of limitations for persons required
to disclose transactions under § 1.6011–4
who fail to do so. See Rev. Proc. 2005–26,
2005–1 C.B. 965.
The Service and the Treasury Depart-
ment recognize that some taxpayers may
have filed tax returns taking the position
that they were entitled to the purported tax
benefits of the types of transactions de-
scribed in Notice 2001–16. These taxpay-
ers should consult with a tax advisor to
ensure that their transactions are disclosed
properly and to take appropriate corrective
action.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Notice 2001–16 is clarified. Notice
2008–20 is superseded.
SECTION 8. REQUEST FOR
COMMENTS
The Service and the Treasury Depart-
ment seek comments regarding the above
definitions, components, and safe harbors
for the purpose of reflecting more accu-
rately which transactions are the same as
or substantially similar to an Intermediary
Transaction and which parties are engag-
ing in a transaction pursuant to the Plan.
Comments should be submitted to: In-
ternal Revenue Service, CC:PA:LPD:PR
(Notice 2008–111), Room 5203, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Alternatively, comments
may be hand delivered Monday through
Friday between the hours of 8:00 a.m.
and 4:00 p.m. to: CC:PA:LPD:PR (No-
tice 2008–111), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Com-
ments may also be submitted electron-
ically, via the following email address:
Notice.Comments@irscounsel.treas.gov.
Please include “Notice 2008–111” in the
subject line of any electronic submissions.
All comments received will be open to
public inspection and copying.
DRAFTING INFORMATION
The principal author of this notice is
Douglas C. Bates of the Office of Asso-
ciate Chief Counsel (Corporate). For fur-
ther information regarding this notice, con-
tact Mr. Bates at (202) 622–7550 (not a
toll-free call).
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2008–112
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under §412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the corpo-
rate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections 412(b)(5)(B)(ii) and 412(l)
(7)(C)(i), as amended by the Pension
Funding Equity Act of 2004 and by the
Pension Protection Act of 2006 (PPA),
provide that the interest rates used to
calculate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the
rates of interest on amounts invested
conservatively in long term investment
grade corporate bonds during the 4-year
period ending on the last day before the
beginning of the plan year.
2008–51 I.R.B.1301December 22, 2008

Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
November 2008 is 7.72 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
December20086.27
5.64
6.27
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. For
plan years beginning in 2008 and 2009, a
transitional rule under § 430(h)(2)(G) pro-
vides that the segment rates are blended
with the corporate bond weighted average
as specified above. An election may be
made under § 430(h)(2)(G)(iv) to use the
segment rates without applying the transi-
tional rule.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, the
24-month average corporate bond segment
rates, and the funding transitional segment
rates used to compute the target normal
cost and the funding target. Pursuant to
Notice 2007–81, the monthly corporate
bond yield curve derived from November
2008 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of Novem-
ber 2008 are, respectively, 7.11, 8.23,
and 7.42. The three 24-month average
corporate bond segment rates applicable
for December 2008 under the election of
§ 430(h)(2)(G)(iv) are as follows:
First
Segment
Second
Segment
Third
Segment
5.25
6.386.68
The transitional segment rates under
§ 430(h)(2)(G) applicable for December
2008, taking into account the corporate
bond weighted average of 6.27 stated
above, are as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2008
5.93
6.316.41
2009
5.59
6.34
6.54
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
bleinterestrateforamonthistheannual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for November 2008 is 4.00 per-
cent. The Service has determined this rate
as the monthly average of the daily deter-
mination of yield on the 30-year Treasury
bond maturing in May 2038.
December 22, 200813022008–51 I.R.B.

Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B)specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Years
Beginning inPermissible R
ange
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
December20084.664.194.89
MINIMUM PRESE
NT VALUE
SEGMENT RATE
S
Generally fo
r plan years beginning af-
ter December
31, 2007, the applicable in-
terest rates
under § 417(e)(3)(D) are seg-
ment rates c
omputed without regard to a
24-month aver
age. For plan years begin-
ning in 2008 t
hrough 2011, the applica-
ble interest
rate is the monthly spot seg-
ment rate ble
nded with the applicable rate
under § 417(e
)(3)(A)(ii)(II) as in effect
for plan year
s beginning in 2007. No-
tice 2007–8
1 provides guidelines for de-
termining the
minimum present value seg-
ment rates. P
ursuant to that notice, the
minimum pres
ent value transitional seg-
ment rates de
termined for November 2008,
taking into a
ccount the November 2008
30-year Trea
sury rate of 4.00 stated above,
are as follo
ws:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20084.62
4.85
4.68
2009
5.245.695.37
DRAFTING INFORMATION
The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov.
2008–51 I.R.B.1303December 22, 2008

Table I
Monthly Yield Curve for November 2008
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
4.92
20.58.0540.57.3560.5
7.13
80.5
7.03
1.05.9321.08.0241.07.3461.07.1381.07.02
1.56.7721.5
7.98
41.57.3361.57.1381.57.02
2.0
7.35
22.07.9542.07.3362.07.1282.07.02
2.57.6522.5
7.91
42.5
7.32
62.5
7.12
82.5
7.02
3.0
7.75
23.07.8843.07.3163.07.1283.07.02
3.5
7.74
23.57.8543.5
7.30
63.5
7.11
83.5
7.01
4.07.7024.07.8244.07.3064.07.1184.07.01
4.57.6624.5
7.79
44.5
7.29
64.57.1184.57.01
5.0
7.64
25.0
7.77
45.0
7.28
65.0
7.10
85.0
7.01
5.5
7.64
25.5
7.74
45.5
7.28
65.5
7.10
85.5
7.01
6.07.6826.07.7246.07.2766.07.1086.07.00
6.5
7.74
26.5
7.70
46.5
7.26
66.5
7.09
86.5
7.00
7.07.8127.07.6847.07.2667.0
7.09
87.07.00
7.5
7.90
27.57.6647.57.2567.5
7.09
87.57.00
8.07.9928.07.6448.0
7.25
68.07.0988.07.00
8.5
8.08
28.5
7.62
48.5
7.24
68.5
7.08
88.5
7.00
9.0
8.17
29.0
7.61
49.0
7.24
69.0
7.08
89.06.99
9.5
8.25
29.57.5949.57.2369.57.0889.5
6.99
10.08.3130.0
7.5850.0
7.2370.07.07
90.06.99
10.58.3730.57.5650.57.2270.57.0790.5
6.99
11.08.4231.0
7.5551.0
7.2171.07.0791.06.99
11.5
8.46
31.57.5451.5
7.21
71.5
7.0791.5
6.99
12.0
8.49
32.0
7.5252.0
7.2072.07.06
92.06.98
12.58.5032.57.5152.5
7.20
72.5
7.0692.5
6.98
13.0
8.51
33.0
7.5053.0
7.2073.07.06
93.06.98
13.58.5133.5
7.49
53.5
7.19
73.57.0693.5
6.98
14.0
8.50
34.07.47
54.0
7.1974.0
7.05
94.06.98
14.5
8.48
34.5
7.46
54.5
7.18
74.57.05
94.5
6.98
15.0
8.46
35.07.4555.0
7.18
75.07.05
95.0
6.98
15.5
8.43
35.5
7.44
55.5
7.17
75.57.05
95.5
6.97
16.08.4036.07.43
56.0
7.1776.07.04
96.06.97
16.58.3736.57.4256.57.1676.57.0496.5
6.97
17.08.3337.07.41
57.0
7.1677.07.0497.06.97
17.5
8.29
37.5
7.40
57.5
7.16
77.5
7.0497.5
6.97
18.0
8.25
38.0
7.39
58.07.15
78.07.04
98.06.97
18.5
8.21
38.5
7.38
58.57.1578.5
7.0398.5
6.97
19.0
8.17
39.0
7.3759.07.14
79.0
7.03
99.06.96
19.58.1339.57.3759.57.1479.57.0399.5
6.96
20.08.0940.07.3660.07.1480.07.03100.06.96
December 22, 200813042008–51 I.R.B.

Relief and Guidance on
Corrections of Certain
Failures of a Nonqualified
Deferred Compensation Plan
to Comply With § 409A(a) in
Operation
Notice 2008–113
TABLE OF CONTENTS
I. Purpose
II. Background
III. Eligibility Requirements
A. In General
B. Avoidance of Recurrenceof Operational Failures
C. Relief not Available to ServiceProviders UnderExamination
D. Additional Eligibility Requirements
E. Required Repayments by the Service Provider
F. Eligibility for Relief for a Taxable Year in which the Service Recipient Experiences a Financial Downturn or Other
Financial Issue
G. Definit
ion of Insider
H. Determining Certain Periods of Days
I. Adjustments for Earnings and Losses
J. Refere
nces to the Internal Revenue Code
IV. Correc
tions of Certain Operational Failures in the Same Taxable Year as the Failure Occurs
A. Failure
to Defer Amount or Incorrect Payment of Amount Payable in a Subsequent Taxable Year Corrected in the
Same Taxab
le Year as the Failure
B. Incorrect Payment of Amount Payable in Same Taxable Yearor Incorrect Payment in Violation of § 409A(a)(2)(B)(i)
Corrected in the Same Taxable Year as the Failure
C. Excess
Deferred Amount Corrected in the Same Taxable Year
D. Correction of Exercise Price of Otherwise Excluded Stock Rights
V. Corrections of Certain Operational Failures Involving Non-Insider Service Providers in the Taxable Year Immediately
Following the Taxable Year in which the Failure Occurs
A. In General
B. Failure to Defer Amount or Incorrect Payment of Amount Payable in a Subsequent Taxable Year Corrected in the
Taxable Year Immediately Following the Failure
C. Incorrect Payment of Amount Payable in Same Taxable Yearor Incorrect Payment in Violation of § 409A(a)(2)(B)(i)
Corrected During Subsequent Taxable Year
D. Excess Deferred Amount Corrected in the TaxableYear Immediately Following the Year of the Failure
E. Corre
ction of Exercise Price of Otherwise Excluded Stock Rights
VI. Reli
ef for Certain Operational Failures Involving Limited Amounts
A. In Gen
eral
B. Failure to Defer Limited Amount not Corrected in the Same Taxable Year and Certain Erroneous Payments of
Limited Amounts
C. Limited Excess Deferred Amount not Corrected in the Same Taxable Year
VII. Relief for Certain Other Operational Failures
A. General Requirements
B. Failure to Defer Amount not Corrected in the Same Taxable Year and Certain Erroneous Payments
C. Incorrect Payment of Amount Payable in Same Taxable Yearor Incorrect Payment in Violation of § 409A(a)(2)(B)(i)
not Corrected in the Same Taxable Year as the Failure
D. Exce
ss Deferred Amount not Corrected in the Same Taxable Year
VIII. S
pecial Transition Rule for Non-Insiders
2008–51 I.R.B.1305December 22, 2008

IX. Information and Reporting Requirements
A. Information Required with Respect to Correction of an Operational Failure in the Same Taxable Year as the Failure
Occurs
B. Information Required with Respect to Relief for Certain Operational Failures
X. Effect on Other Documents
XI. Request for Comments
XII. Paperwork Reduction Act
XIII. Drafting Information
I. PURPOSE
This notice provides procedures under
which taxpayers can obtain relief from the
full application of the income inclusion
and the additional taxes under § 409A with
respect to certain failures of a nonquali-
fied deferred compensation plan to com-
ply with § 409A(a) in operation (an opera-
tional failure), including:
•Methods for correcting certain op-
erational failures during the service
provider’s taxable year in which the
failure occurs and, for certain service
providers also during the subsequent
taxable year, to avoid income inclu-
sion under § 409A(a).
•Relief limiting the amount includible
in income under § 409A(a) for cer-
tain operational failures during a ser-
vice provider’s taxable year that in-
volve only limited amounts.
•Relief limiting the amount includible
in income under § 409A(a) for cer-
tain operational failures regardless of
whether the failure involves only lim-
ited amounts, but subject to further re-
quired actions to correct the failure.
•Special transition relief for certain op-
erational failures occurring before Jan-
uary 1, 2008.
Comments are also requested on
whether procedures for the correction of a
failure of a plan to comply with the plan
document requirements of §1.409A–1(c)
should be adopted. See § XI of this notice.
II. BACKGROUND
On December 3, 2007, the Treasury
Department and the IRS issued Notice
2007–100, 2007–52 I.R.B. 1243, setting
forth guidance permitting the correction
of certain operational failures, and provid-
ing transition relief limiting the amount
includible in income under § 409A(a)
for certain operational failures involving
limited amounts. Notice 2007–100 also
described potential guidance that would
limit the amount includible in income
under § 409A(a) for certain operational
failures involving amounts that exceeded
the limit. Comments were requested with
respect to all aspects of the notice. The
Treasury Department and the IRS have
reviewed all of the comments submitted,
and are issuing this notice as a successor
to Notice 2007–100. This notice incor-
porates, clarifies and expands upon the
guidance provided in Notice 2007–100,
and accordingly Notice 2007–100 is obso-
leted. For further information, see § X of
this notice.
III. ELIGIBILITY REQUIREMENTS
A.In General
A taxpayer is not eligible for the relief
provided in §§ IV through VIII of this no-
tice unless all of the applicable require-
ments of this § III are met, as well as the
requirements of the particular section pro-
viding the applicable relief and the notice
and the reporting requirements of § IX. In
each instance, the taxpayer claiming the re-
lief has the burden of demonstrating that
the taxpayer was eligible for the relief and
that the requirements of this notice have
been met. Any application of the relief
provided in this notice is subject to exam-
ination by the IRS.
B.Avoidance of Recurrence of
Operational Failure
The relief provided under §§ IV through
VIII of this notice is not available unless,
in addition to meeting the applicable re-
quirements of the relevant section, the ser-
vice recipient takes commercially reason-
able steps to avoid a recurrence of the op-
erational failure. If the same or a substan-
tially similar operational failure has oc-
curred previously, the relief is not available
for any taxable year of the service provider
beginning after December 31, 2009, unless
the service recipient or service provider
demonstrates that the service recipient had
established practices and procedures rea-
sonably designed to ensure that such an
operational failure would not recur and
had taken commercially reasonable steps
to avoid a recurrence of the operational
failure and that the operational failure oc-
curred despite the service recipient’s dili-
gent efforts.
C.Relief not Available to Service
Providers Under Examination
The relief provided in §§ V through
VIII is not available if a federal income
tax return of the relevant service provider
for the service provider’s taxable year in
which the operational failure occurred is
under examination with respect to the plan.
For this purpose, an individual service
provider is treated as under examination
with respect to the plan if the individual
is under examination with respect to the
individual’s federal income tax return (for
example, Form 1040) for the taxable year.
D.Additional Eligibility Requirements
Sections IV through VIII of this notice
do not provide relief for plan terms and
provisions that fail to meet the require-
ments of § 409A or for operational failures
that are not described in those sections.
1
The Treasury Department and the IRS are
1
Reliance on the transition relief provided in Notice 2007–86, 2007–46 I.R.B. 990, the preamble to the final regulations under § 409A, 72 Fed. Reg. 19234, Notice 2006–79, 2006–2 C.B.
763, the preamble to the proposed regulations under § 409A, 70 Fed. Reg. 57930, or Notice 2005–1, 2005–1 C.B. 274, for the years to which such transitionrelief applies, does not preclude
a taxpayer from qualifying for the relief provided in this notice with respect to operational failures occurring in taxable years beginning before January 1, 2009.
December 22, 200813062008–51 I.R.B.

requesting comments as to whether an ad-
ditional program to address plan document
failures would be feasible and advisable
(see § XI of this notice). In addition, relief
is not available under §§ IV through VIII
of this notice with respect to any exercise
of a stock right that otherwise would result
in a failure to comply with § 409A. Relief
otherwise available under §§ IV through
VIII of this notice is conditioned upon the
timely filing and providing of the informa-
tion required by § IX of this notice. The
relief provided by §§ IV through VIII of
this notice applies only to operational fail-
ures that are inadvertent and unintentional.
For this purpose, an inadvertent and unin-
tentional operational failure means a fail-
ure to comply with plan provisions that sat-
isfy the requirements of § 409A(a), or an
inadvertent unintentional failure to follow
the requirements of § 409A(a) in practice,
due to one or more inadvertent and unin-
tentional errors in the operation of the plan.
In addition, the relief provided in this sec-
tion is not available if the failure is directly
or indirectly related to participation in any
listed transaction under §1.6011–4(b)(2)).
E.Required Repayments by the Service
Provider
If to qualify for any applicable relief a
service provider is required to repay to the
service recipient an amount erroneously
paid or made available to the service
provider,suchasrequiredin§§IV.A,
IV.B, V.B, V.C, VII.B and VII.C, the
amount erroneously paid or made avail-
able to the service provider refers to the
gross amount paid to, or on behalf of, the
service provider, before the application
of any withholding requirements such as
the Federal employment tax withholding
requirements. The service provider may
satisfy the requirement to repay the service
recipient the amount erroneously paid to
the service provider and interest (if appli-
cable) by paying the service recipient the
equivalent amount on or before the appli-
cable deadline. Alternatively, in lieu of
such repayment, the service recipient may
reduce the service provider’s compensa-
tion that otherwise would have been paid
on or before such applicable deadline by
an equivalent amount. To the extent that,
in lieu of repayment, the service recipient
reduces other compensation that would
have been paid to the service provider, the
other compensation that would have been
paid to the service provider, but instead
is used to repay the erroneous payment
or interest (if applicable), is includible in
income (and wages if the service provider
is an employee).
The amount will not be treated as re-
paid by the service provider if, in connec-
tion with such payment, the service recipi-
ent pays the service provider, or otherwise
provides a benefit (including an obligation
to pay an amount or provide a benefit in
the future), intended as a substitute for all
or part of the amount the service provider
is required to repay the service recipient.
F.Eligibility for Relief for a Taxable
Year in which the Service Recipient
Experiences a Financial Downturn or
Other Financial Issue
The relief provided in §§ IV through
VIII is not available with respect to any
erroneous payment occurring during any
taxable year of the service provider in
which the service recipient experiences a
substantial financial downturn, or other-
wise experiences financial or other issues,
if such downturn or other issue indicates
asignificantriskthatthe service recipient
will not be able to pay the amount deferred
when the payment becomes due.
G.Definition of Insider
Certain sections of this notice provide
additional eligibilityrequirements for re-
lief, or do not provide relief, if the af-
fected service provider is an insider with
respect to a service recipient. For purposes
of this notice, a service provider is an in-
sider with respect to a service recipient if
the service provider is a director or offi-
cer of the service recipient or is directly
or indirectly the beneficial owner of more
than 10% of any class of any equity secu-
rity of the service recipient, determined in
accordance with the rules of the Securities
andExchangeCommissionunder§16of
the Securities Exchange Act of 1934, as
amended, 15 USC 78p, without regard to
whether the service recipient has any class
of equity securities registered under § 12
of such Act, 15 USC 78l. See 17 CFR
§ 240.16a–1(a) (beneficial owner) and (f)
(officer). In the case of a service recipient
that is not a corporation, such rules are
applied by analogy.
H.Determining Certain Periods of Days
To apply the requirements of certain
sections of this notice, a period of days
must be calculated and applied. For ex-
ample, the number of days that a service
provider retained amounts erroneously
paid to the service provider may be re-
quired to be calculated. For purposes of
counting days under this notice, the first
day of the period is disregarded and the
last day is taken into account. For exam-
ple, if on June 1, 2009, a service recipient
erroneously paid a service provider an
amount that the service provider repaid
on June 30, 2009, there would be 29 days
from the date of payment through the
date of repayment. If the period of days
required to be calculated ends upon the
service provider’s repayment, and the re-
payment is made through a reduction of
the service provider’s other compensation,
the repayment date occurs on each date
the compensation otherwise would have
been paid to the service provider.
I.Adjustments for Earnings and Losses
The relief provided in certain sections
of this notice permits or requires that de-
ferred amounts be adjusted to reflect earn-
ings and losses, provided that such adjust-
ments must be made by a specified dead-
line. If it is impracticable to make the ad-
justment by the applicable deadline, the
adjustment will be treated as made if, on
or before the applicable deadline, the ser-
vice provider (in the case of earnings) or
the service recipient (in the case of losses)
has a legally binding right to have such ad-
justment made.
J.References to the Internal Revenue
Code
For purposes of this notice, references
to sections of the Internal Revenue Code
include references toany applicable guid-
ance thereunder.
IV. CORRECTIONS OF CERTAIN
OPERATIONAL FAILURES IN THE
SAME TAXABLE YEAR AS THE
FAILURE OCCURS
2008–51 I.R.B.1307December 22, 2008

A.Failure to Defer Amount or Incorrect
Payment of Amount Payable in a
Subsequent Taxable Year Corrected in the
Same Taxable Year as the Failure
1. Relief for Amounts to which § IV.A
Applies
This § IV.A applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § IV.A.2(a)
and the requirements of § IV.A.2(b)
through (d) and § IV.A.4 are met. An
amount to which this § IV.A applies is
treated as having been timely deferred
in accordance with the terms of the plan
and any applicable deferral election (or as
having continued to be deferred under the
terms of the plan).
2. Amounts to which § IV.A Applies
(a) A failure is described in this
§ IV.A.2(a) if an amount of nonquali-
fied deferred compensation that, under
the terms of the plan and any applica-
ble deferral election, and § 409A, should
not have been paid or made available
to a service provider in a taxable year
of the service provider, was erroneously
paid or made available to the service
provider in that year, other than a pay-
ment that fails to meet the requirements of
§ 409A(a)(2)(B)(i) (requirement to delay
for six months payments to a specified
employee upon separation from service).
For rules relating to correction of certain
payments that fail to meet the require-
ments of § 409A(a)(2)(B)(i), see § IV.B of
this notice.
(b) The service provider repays to the
service recipient the amount that was er-
roneously paid or made available to the
service provider on or before the last day
of the service provider’s taxable year in
which such amount was erroneously paid
or made available. If the service provider
wasnotaninsider(asdefinedin§III.G)
at any time during the taxable year in
which such amount was erroneously paid
or made available, and if repayment of
such amount would cause an immediate
and heavy financial need as defined in
§1.401(k)–1(d)(3)(iii), in lieu of immedi-
ate repayment the service recipient and the
service provider may enter into a legally
binding agreement to have such amounts
repaid over a specified period that ends
not later than 24 months from the due date
(without extensions) for the federal in-
come tax return for the service provider’s
taxable year during which the amount was
erroneously paid or made available to the
service provider, provided that the service
provider must also pay interest on the
amount repaid to the service recipient. For
this purpose, the interest rate must be no
less than the short-term applicable Federal
rate (AFR) under § 1274(d)(1), based on
annual compounding, for the month in
which the erroneous payment was paid
or made available. If the amount paid or
withheld on a repayment date is less than
the entire erroneous payment, for each
repayment date the interest calculation is
applied by substituting the unpaid balance
immediately before the repayment for the
amount of the erroneous payment. The
repayment requirement of this § IV.A.2(b)
will not be met unless all payments (in-
cluding interest) are made by the end of
the period specified in such agreement.
(c) Immediately after such repay-
ment (or agreement to repay) the service
provider has a legally binding right under
the plan to be paid the amount that would
have been due if such amount had not been
erroneously paid or made available to the
service provider during such taxable year,
atthesametimeandinthesameform
of payment that the amount would have
been payable if such amount had not been
erroneously paid or made available to the
service provider during such taxable year.
(d) If the total of all amounts to which
this § IV.A applies that are erroneously
paid or made available under a plan (as de-
fined for purposes of § 409A) in a service
provider’s taxable year exceeds the limit
on elective deferrals that would apply to
a qualified plan under § 402(g)(1)(B) for
the year in which the erroneous payment
was made and the service provider was an
insider (as defined in § III.G of this notice)
with respect to the service recipient at any
time during the taxable year in which the
erroneous payment was made, the service
provider pays interest to the service re-
cipient at the time the service provider
repays the amount to the service recipient
equal to the amount of the erroneous pay-
ment (E)multipliedbyaninterestratethat
is no less than the short-term applicable
Federal rate (AFR) under § 1274(d)(1) (r)
multiplied by a fraction, the numerator
of which is the number of days from the
erroneous payment date to the repayment
date (n
1
) and the denominator of which is
the number of days in such taxable year
(n
2
), or (Exrxn
1
/n
2
). For purposes of
the preceding sentence,ris the short-term
AFR, based on annual compounding,
for the month in which the erroneous
payment was paid or made available to
the service provider. If the amount paid or
withheld on a repayment date is less than
the entire erroneous payment, for each
repayment date the interest calculation is
applied by substituting the unpaid balance
immediately before the repayment for the
amount of the erroneous payment. For
rules regarding the counting of days, see
§ III.H of this notice.
3. Reporting and Withholding
Requirements
The amount erroneously paid to the ser-
vice provider that is repaid by the service
provider to the service recipient is not re-
quired to be included in income by the
service provider, or reported as income to
the service provider on a Form W–2 or
Form 1099 by the service recipient. To the
extent employment taxes have been with-
held and paid with respect to such pay-
ment and would not otherwise have been
due absent such payment, appropriate ad-
justments should be made in accordance
with the applicable rules under § 6413.
To the extent that, in lieu of repayment,
the service recipient reduces other com-
pensation that would have been paid to the
service provider, the other compensation
that would have been paid to the service
provider, but instead is used to repay the er-
roneous payment or to pay any required in-
terest on the erroneous payment, is includi-
ble in income (and wages if the service
provider is an employee); however, any
employment taxes withheld and paid with
respect to the original erroneous payment
maybeappliedtosatisfytherequirement
to withhold and pay employment taxes on
such compensation, in which case no ad-
justment to the employment taxes previ-
ously withheld and paid should be made.
4. Adjustments for Earnings
For purposes of this § IV.A, the ser-
vice provider’s account balance or other
amount of deferred compensation under
the plan may be adjusted for earnings (or
losses) retroactive to the date the amount
should have been credited to the service
December 22, 200813082008–51 I.R.B.

provider’s account or otherwise deferred
(or if the amount should have otherwise
remained deferred compensation after the
end of the service provider’s taxable year,
retroactive to the date the amount was paid
or made available), provided that such ad-
justment must be made on or before the last
day of such taxable year.
5. Examples
In each of the following examples, it
is assumed that Employee is an individual
whose taxable year is the calendar year and
Employee and Employer both satisfy the
applicable requirements of §§ III and IX
of this notice.
Example 1: Employee, who is not an insider with
respect to Employer, makes a timely election to de-
fer 50% of a bonus payable in 2009 pursuant to an
account balance plan maintained by Employer. The
bonus is $100,000. Employer erroneously defers only
10% of the bonus, or $10,000, and pays Employee
the other $90,000 in 2009 (including the $40,000 that
should have been deferred). The deferral is treated as
made in accordance with the terms of the plan and the
deferral election if, on or before December 31, 2009,
the additional $40,000 is credited to Employee’s ac-
count balance and Employee pays Employer $40,000.
The $40,000 erroneously paid to Employee is not re-
quired to be included in income by Employee or re-
ported as income by Employer on Form W–2. Al-
ternatively, in lieu of the $40,000 repayment by Em-
ployee to Employer, compensation otherwise payable
to Employee in 2009 (such as salary payments) may
be reduced by $40,000, provided that the $40,000 re-
duction in Employee’s compensation used to repay
the amount (but not the $40,000 erroneous payment)
is included in income by Employee and reported as
wages by Employer on the 2009 Form W–2. Em-
ployer may also adjust Employee’s account to reflect
the earnings (or losses) that would have been allo-
cated to Employee’s account had the amount been
timely deferred and credited to Employee’s account
balance, if such adjustment for earnings (or losses) is
made on or before December 31, 2009. For example,
if the original $10,000 deferral would have been cred-
ited with 10% in deemed investment earnings, the de-
ferral plus earnings would be $11,000. This amount
must be increased by the $40,000repaidbyEmployee
and may also be increased by an additional $4,000
($40,000 multiplied by 10%), to result in the $55,000
account balance that would have been reflected had
the amount been properly deferred. If the original in-
correct deferral would have been charged with 10%
in deemed investment losses, the deferral less losses
would be $9,000. This account balance must be in-
creased by the $40,000, but may also be reduced by
$4,000, for a net increase of $36,000, to result in the
$45,000 account balance that would have been re-
flected had the amount been properly deferred.
Example 2: Employee, who is an insider with
respect to Employer, makes a timely election to defer
80% of a $100,000 bonus payable on July 1, 2010,
pursuant to an account balance plan maintained by
Employer. Employer erroneously defers only 10%
of the bonus, or $10,000, and pays Employee the
other $90,000 (including $70,000 that should have
been deferred) on July 1, 2010. Assume for purposes
of this example that the short-term AFR, based on
annual compounding, for July 2010 is 4.0%. Em-
ployer notifies Employee of the error and Employee
pays Employer $70,705.75 on October 1, 2010,
consisting of the $70,000 erroneous payment plus
interest equal to $705.75 ($70,000 x .04 x 92/365)
(because the erroneous payment exceeds the limit on
elective deferrals that would apply to a qualified plan
under § 402(g)(1)(B) for 2010 and Employee is an
insider). The $70,000 is not required to be included
in income by Employee orreported as income by
Employer on Form W–2. Alternatively, in lieu of
the $70,705.75 payment by Employee to Employer,
compensation otherwise payable to Employee in
2010 (such as salary payments) may be reduced
by $70,000 plus applicable interest, in which case
the reduction in Employee’s compensation used to
repay the amount plus applicable interest (but not
the erroneous $70,000 payment) must be reported by
Employer as wages on the 2010 Form W–2 issued
to Employee and included in Employee’s income for
2010. Employer may also adjust Employee’s account
to reflect the earnings that would have been allocated
to Employee’s account had the amount been timely
deferred and credited to Employee’s account bal-
ance, if such adjustment for earnings is made on or
before December 31, 2010. Employer must include
in income any interest paid to Employer.
B.Incorrect Payment of Amount Payable
in Same Taxable Year or Incorrect
Payment in Violation of § 409A(a)(2)(B)(i)
Corrected in the Same Taxable Year as
the Failure
1. Relief for Amounts to which § IV.B
Applies
With respect to an amount to which this
§ IV.B applies, the service provider will
not be treated as having failed to comply
with § 409A(a)(2)(B)(i) (if applicable) and
the terms of the plan and any applicable
deferral election as a result of the amount
being paid or made available at the earlier
date.
2. Amounts to which § IV.B Applies
This § IV.B applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § IV.B.2(a)
and the requirements of § IV.B.2(b) and
§IV.B.4aremet.
(a) A failure is described in this
§ IV.B.2(a) if an amount of nonquali-
fied deferred compensation that, under
the terms of the plan and any applica-
ble deferral election, should not have
been paid or made available to a service
provider until a later date in the same tax-
able year, was erroneously paid or made
available to the service provider more than
30 days before such later due date, or an
amount of nonqualified deferred compen-
sation that, under the terms of the plan
and any applicable deferral election, and
§ 409A(a)(2)(B)(i) (requirement to delay
for six months payments to a specified
employee upon separation from service)
and the applicable guidance, (i) would
have been payable during the six months
following the service provider’s separa-
tion from service if the service provider
had not been a specified employee, (ii)
because the service provider was a speci-
fied employee the amount should not have
been paid or made available to a service
provider within the six months after the
service provider’s separation from service,
and (iii) such amount was erroneously paid
or made available to the service provider
during such six-month period.
(b) On or before the last day of the
service provider’s taxable year in which
the amount was paid or made available,
the service provider repays to the service
recipient the amount that was erroneously
paid or made available to the service
provider, and immediately after such re-
payment the service provider has a legally
binding right to receive such amount from
the service recipient on the date that (i) if
the repayment is made on or before the
date the amount would otherwise have
been payable under the terms of the plan
and the applicable deferral election, is
the same number of days after the date
theamountwouldotherwisehavebeen
payable as the number of days from the
date the service recipient made the er-
roneous payment to the service provider
through the date the service provider re-
paid the erroneous payment to the service
recipient, and (ii) if the repayment is made
after the date the amount would otherwise
have been payable under the terms of the
plan and the applicable deferral election,
is the same number of days after the date
the amount is repaid as the number of
days from the date the service recipient
made the erroneous payment to the ser-
vice provider through the date the amount
would otherwise have been payable under
the terms of the plan and the applicable
deferral election. For rules regarding the
counting of days, see § III.H of this notice.
2008–51 I.R.B.1309December 22, 2008

3. Reporting and Withholding
Requirements
If the requirements of this § IV.B are
met, the original payment from the service
recipient to the service provider that has
been repaid to the service recipient is not
required to be reported as income on Form
W–2 or Form 1099, as applicable. To the
extent employment taxes have been with-
held and paid with respect to such pay-
ment, and would not otherwise have been
due absent such payment, appropriate ad-
justments should be made under the appli-
cable rules under § 6413. However, the
subsequent payment of the amount by the
service recipient to the service provider is
required to be reported appropriately as
income on Form W–2 or Form 1099, as
applicable, and subject to the applicable
employment taxes. If the payment is de-
ductible by the service recipient, the tax-
able year in which such deduction is al-
lowable will be determined in accordance
with § 404(a)(5) and the service recipient’s
method of accounting.
4. Adjustment for Earnings
Forpurposesofthis§IV.B,theser-
vice provider’s account balance or other
amount of deferred compensation under
the plan may not be adjusted for earnings,
but may be adjusted for losses, retroac-
tive to the date the amount was erroneously
paid or made available, provided that such
adjustment must be made on or before the
applicable deadline for repayment.
5. Examples
In each of the following examples, it
is assumed that Specified Employee is an
individual whose taxable year is the cal-
endar year, at all relevant times Specified
Employee is a specified employee of Em-
ployer for purposes of § 409A(a)(2)(B)(i),
and Specified Employee and Employer
both satisfy the applicable requirements of
§§ III and IX of this notice.
Example 1: Under a nonqualified deferred com-
pensation plan sponsored by Employer, Specified
Employee has a legally binding right to a payment of
deferred compensation on the first day of the seventh
month following Specified Employee’s separation
from service. Specified Employee separates from
service on December 15, 2008, so that the payment
is due on July 1, 2009. Employer erroneously pays
Specified Employee the amount of deferred compen-
sation on March 1, 2009 (122 days before the original
payment due date). Employer discovers the error on
May 1, 2009, and Specified Employee repays the
amount to Employer on June 1, 2009 (92 days after
the erroneous payment). Provided that immediately
after such repayment Specified Employee has a
legally binding right to receive the amount from Em-
ployer on October 1, 2009 (92 days after the July 1,
2009 original payment due date) and Employer does
not repay the amount to Specified Employee before
that date, Specified Employee will not be treated
ashavingfailedtocomplywith§409A(a)(2)(B)(i)
and the terms of the plan and the applicable deferral
election solely as a result of the early payment.
Example 2: Under a nonqualified deferred com-
pensation plan sponsored by Employer, Specified
Employee has a legally binding right to a payment
of deferred compensation payable as a lump sum
payment December 1, 2009 (and so not subject to the
six-month delay requirement of § 409A(a)(2)(B)(i)).
Employer erroneously pays Specified Employee
the amount of deferred compensation on September
1, 2009 (91 days early). Employer discovers the
error and Specified Employee repays the amount
to Employer on November 1, 2009 (61 days after
the erroneous payment). Provided that immediately
after such repayment Specified Employee has a
legally binding right to receive the amount from
Employer on January 31, 2010 (61 days after the
original payment due date) and Employer does not
repay the amount to Specified Employee before
that date, Specified Employee will not be treated as
having failed to comply with the terms of the plan
and the applicable deferral election solely as a result
of the early payment. The erroneous payment is not
includible in Specified Employee’s income, and is
not required to be reported as income on the 2009
Form W–2. Such amount is includible in Specified
Employee’s income in the year in which the amount
is repaid by Employer to Specified Employee, and
is required to be reported as income on that year’s
Form W–2 and subject to applicable income taxes.
C.Excess Deferred Amount Corrected in
theSameTaxableYear
1. Relief for Amounts to which § IV.C
Applies
An excess amount to which this § IV.C
applies is not treated as an amount deferred
under the plan.
2. Amounts to which § IV.C Applies
This § IV.C applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in §§ IV.C.2(a)
and the requirements of § IV.C.2(b) and (c)
and§IV.C.3aremet.
(a) A failure is described in this
§ IV.C.2(a) if, under the terms of a plan
and an applicable deferral election, and
§ 409A, an amount that should not have
been deferred compensation under the
planiserroneouslycreditedtotheservice
provider’s account or otherwise treated
as deferred compensation under the plan,
and such excess amount otherwise would
have been paid to the service provider
during the service provider’s taxable year
in which the excess amount was incor-
rectly credited to the service provider’s
account or otherwise treated as deferred
compensation under the plan. However,
a service recipient’s failure to timely pay
in the proper taxable year of a service
provider amounts that were deferred in
one or more previous taxable years of the
service provider is not a failure described
in this § IV.C.2(a), but see § 1.409A–3(d)
for certain circumstances under which
such payments may be treated as made
in accordance with a designated payment
date.
(b) The excess amount is paid to the
service provider on or before the last day
of the service provider’s taxable year in
which the excess amount was incorrectly
treated as deferred compensation.
(c) The amount to which the service
provider has a legally binding right under
the plan at the end of the year is adjusted to
reflect the payment (for example, through
a reduction in the account balance). The
service recipient may (but is not required
to) pay reasonable interest to (or other-
wise reasonably compensate) the service
provider to reflect the time value of money
with respect to the late payment, provided
that such interest or other compensation is
paid or made available by the end of the
service provider’s taxable year in which
such amount was incorrectly treated as de-
ferred compensation under the plan.
3. Adjustment for Earnings
If the service provider was an insider
with respect to the service recipient (as
defined in § III.G of this notice) at any
time during the service provider’s taxable
year during which thefailure occurred,
the remaining account balance (or other
deferred compensation under the plan) is
adjusted for earnings retroactive to the
date the excess amount was incorrectly
credited to the service provider’s account
or otherwise incorrectly treated as de-
ferred under the plan, provided that such
adjustment must be made on or before the
last day of the service provider’s taxable
year in which such amount was incorrectly
treated as deferred compensation under
the plan. If the service provider was not an
December 22, 200813102008–51 I.R.B.

insider, such adjustment may be made (but
is not required). If the amount was subject
to losses, the remaining account balance
(or other deferred compensation under the
plan) is not required to be adjusted, but
may be adjusted for such losses retroactive
to the date the excess amount was incor-
rectly credited to the service provider’s
account or otherwise incorrectly treated as
deferred under the plan, provided that such
adjustment must be made on or before the
last day of the service provider’s taxable
year in which such amount was incorrectly
treated as deferred compensation under
the plan.
4. Example
In the following example, it is assumed
that Employee is an individual whose tax-
able year is the calendar year and Em-
ployee and Employer both satisfy the ap-
plicable requirements of §§ III and IX of
this notice.
Example: Employee, who is an insider with re-
spect to Employer and whose taxable year is the cal-
endar year, makes a timely election pursuant to an ac-
count balance plan to defer 10% of a bonus otherwise
payable in 2008. The bonus is $100,000. Employer
erroneously defers 50% of the bonus, or $50,000, and
pays Employee $50,000 (instead of deferring $10,000
and paying Employee $90,000). The excess $40,000
will not be treated as deferred under the plan if on
or before December 31, 2008, Employer pays Em-
ployee $40,000 of the account balance under the plan.
The remaining account balance must be adjusted for
earnings and may be adjusted for losses that were al-
locable to such amount under the plan. Employer
may (but is not required to) pay Employee reasonable
interest on the $40,000 erroneous deferral provided
such payment is made by December 31, 2008.
D.Correction of Exercise Price of
Otherwise Excluded Stock Rights
1. Relief for Amounts to which § IV.D
Applies
If this § IV.D applies to a stock right, the
stock right is treated from the date of grant
as not providing for a deferral of compen-
sation for purposes of § 409A.
2. Amounts to which § IV.D Applies
This § IV.D applies if during a service
provider’s taxable year a failure occurs that
isdescribedin§IV.D.2(a)andtherequire-
ments of § IV.D.2(b) are met.
(a) A failure is described in this
§ IV.D.2(a) if, under the terms of a stock
right, the stock right would not provide
for a deferral of compensation under
§ 1.409A–1(b)(5)(i)(A) (excluded stock
options) or § 1.409A–1(b)(5)(i)(B) (ex-
cluded stock appreciation rights), except
that the exercise price of the stock right
is erroneously established at less than the
fair market value of the underlying stock
onthedateofgrant.
(b) Before the stock right is exercised
and not later than the last day of the service
provider’s taxable year in which the ser-
vice recipient grantedthe service provider
the stock right, the exercise price is reset
to an amount not less than the fair market
value of the underlying stock on the date
of grant.
3. Example
In the following example, it is assumed
that Employee is an individual whose tax-
able year is the calendar year and Em-
ployee and Employer both satisfy the ap-
plicable requirements of §§ III and IX of
this notice.
Example: On January 1, 2009, Employer grants
Employee a stock option to purchase 100 shares of
stock, and the stock option otherwise would not pro-
vide for a deferral of compensation for purposes of
§ 409A except that due to anerror the exercise price
is set at an amount below the fair market value of
the stock on January 1, 2009. On July 1, 2009, Em-
ployee partially exercises the stock option and pur-
chases 40 shares, but retains a stock option to pur-
chase 60 shares. Provided that before the earlier of
January 1, 2009 or the exercise of the remaining stock
option to purchase 60 shares, the exercise price of the
stock option to purchase 60 shares is reset to a price at
or above the fair market value of the underlying stock
on January 1, 2009, the stock option to purchase 60
shares may qualify for the relief provided in this sec-
tion. Because the exercise price was not reset before
the exercise on July 1, 2009, the portion of the stock
option that was exercised to purchase 40 shares is not
eligible for the relief provided in this section.
V. CORRECTIONS OF CERTAIN
OPERATIONAL FAILURES
INVOLVING NON-INSIDER
SERVICE PROVIDERS IN THE
TAXABLE YEAR IMMEDIATELY
FOLLOWING THE TAXABLE YEAR
IN WHICH THE FAILURE OCCURS
A.In General
The relief provided in this § V is avail-
able only with respect to service providers
that are not insiders as defined in § III.G
of this notice at any time during the service
provider’s taxable year in which the opera-
tional failure occurs, or at any time during
the immediately following taxable year.
The relief is available with respect to such
service providers regardless of whether the
same or a substantiallysimilar failure oc-
curred with respect to a service provider
that is an insider, but in no case is the relief
available with respect to a service provider
that is an insider at any time during ei-
ther taxable year. For example, if an op-
erational failure under an arrangement re-
sults in two erroneous $10,000 payments,
one to a service provider that is an insider
and one to a service provider that is not
an insider, the relief provided in this § V
may be available with respect to the ser-
vice provider that isnot an insider (pro-
vided that all other requirements are met),
but is not available with respect to the ser-
vice provider that is an insider. The relief
provided in this § V may be available re-
gardless of whether relief is also available
under § VI or VII of this notice, so that the
relief provided in this section may be uti-
lized in lieu of the relief otherwise avail-
able under § VI or VII of this notice.
B.Failure to Defer Amount or Incorrect
Payment of Amount Payable in a
Subsequent Taxable Year Corrected in the
Taxable Year Immediately Following the
Failure
1. Relief for Amounts to which § V.B
Applies
An amount to which this § V.B applies
is treated as having been timely deferred
in accordance with the terms of the plan
and any applicable deferral election (or as
having continued to be deferred under the
terms of the plan).
2. Amounts to which § V.B Applies
This § V.B applies if during a service
provider’s taxable year an operational fail-
ure that is described in § V.B.2(a) occurs
and the requirements of § V.B.2(b) through
(d) and §§ V.B.3 and 4 are met.
(a) A failure is described in this
§ V.B.2(a) if an amount of nonqualified
deferred compensation that, under the
terms of the plan and any applicable defer-
ral election, and § 409A, should not have
been paid or made available to a service
provider in a taxable year of the service
provider, erroneously was paid or made
available in that year, and such payment is
2008–51 I.R.B.1311December 22, 2008

not a payment that fails to meet the require-
ments of § 409A(a)(2)(B)(i) (requirement
to delay for six months payments to a
specified employee upon separation from
service).
(b) The service provider repays to the
service recipient the amount that was erro-
neously paid or made available to the ser-
vice provider during the service provider’s
taxable year immediately following the
taxable year in which such amount was
erroneously paid or made available. If
repayment of such amount would cause
an immediate and heavy financial need
as defined in §1.401(k)–1(d)(3)(iii), the
service recipient and the service provider
may enter into a legally binding agree-
ment to have such amounts repaid over a
specified period that ends not later than 24
months from the due date (without exten-
sions) for the federal income tax return for
the service provider’s taxable year during
which the amount was erroneously paid
or made available to the service provider.
However, the repayment requirement of
this § V.B.2(b) will not be met unless all
payments are made by the end of the pe-
riod specified in such agreement. If the
amount erroneously paid or made avail-
able to the service provider is otherwise
payable under the terms of the plan dur-
ing the subsequent taxable year during
which repayment would be required under
this § V.B.2(b), no repayment is required.
However, the service provider must pay
the interest payment set forth in § V.B.2(d)
below assuming that the first date during
the subsequent taxable year at which the
amount otherwise could have been paid in
compliance with the plan terms is the date
of repayment.
(c) Immediately after such repay-
ment (or agreement to repay), the service
provider has a legally binding right under
the plan to be paid the amount that would
have been due if such amount had not been
erroneously paid or made available to the
service provider during such taxable year,
at the same time and in the same form
of payment that the amount would have
been payable if such amount had not been
erroneously paid or made available to the
service provider during such taxable year.
(d) The service provider pays interest
to the service recipient at the time the ser-
vice provider repays the amount to the ser-
vice recipient with interest at a rate not less
than the short-term applicable Federal rate
(AFR) under § 1274(d)(1), based on an-
nual compounding, for the month in which
the erroneous payment was paid or made
available, compounded as of the end of the
service provider’s taxable year. For this
purpose, the interest rate is the short-term
AFR for the month in which the erroneous
payment was paid or made available. If the
amount paid on a repayment date is less
than the entire erroneous payment, for each
repayment date the interest calculation is
applied by substituting the unpaid balance
immediately before the repayment for the
amount of the erroneous payment.
3. Reporting and Withholding
Requirements
The amount erroneously paid to the ser-
vice provider that is repaid by the service
provider to the servicerecipient is required
to be included in income by the service
provider, and reported as income to the
service provider on a Form W–2 or Form
1099 by the service recipient, for the year
in which the erroneous payment is made.
As part of the relief provided by this sec-
tion, the service provider is permitted to
take a deduction in determining adjusted
gross income equal to the repayment to the
service recipient (but not including any in-
terest payment), but is required to include
the subsequent payment in income (and the
service recipient is required to report the
amount as income on Form W–2 or Form
1099). To the extent that, in lieu of repay-
ment, the service recipient reduces other
compensation that would have been paid
to the service provider, the other compen-
sation that would have been paid to the
service provider but that instead is used
to repay the erroneous payment or to pay
any required interest on the erroneous pay-
ment, is includible in income (and wages if
the service provider is an employee); how-
ever, with respect to the amount repaid (ex-
cluding any interest payment), the service
provider is permitted to take a deduction in
determining adjusted gross income for the
amount of the repayment.
4. Adjustment for Earnings
Forpurposesofthis§V.B,theser-
vice provider’s account balance or other
amount of deferred compensation under
the plan may be adjusted for earnings (or
losses) retroactive to the date the amount
should have been credited to the service
provider’s account or otherwise deferred
(or if the amount should have otherwise
remained deferred compensation after the
end of the service provider’s taxable year,
retroactive to the date the amount was paid
or made available), provided that such ad-
justment must be made on or before the last
day of the taxable year in which the repay-
ment is made.
5. Example
In the following example, it is assumed
that Employee is an individual whose tax-
able year is the calendar year, at all rele-
vant times Employee is not an insider as
defined in § III.G of this notice, and Em-
ployee and Employer both satisfy the ap-
plicable requirements of §§ III and IX of
this notice.
Example: Employee makes a timely election to
defer 20% of a $100,000 bonus payable on July 1,
2010, pursuant to an account balance plan maintained
by Employer. Employer erroneously defers only 10%
of the bonus, or $10,000, and pays Employee the
other $90,000 (including $10,000 that should have
been deferred) on July 1, 2010. Assume for purposes
of this example that the short-term AFR for July 2010
is 4.0%. Employer notifies Employee of the error
and Employee pays Employer $10,505.73 on Octo-
ber 1, 2011, consisting of the $10,000 erroneous pay-
ment plus $505.73 interest.
2
The deferral is treated as
made in accordance with the terms of the plan under
this § V.B. For 2010, the $10,000 payment is required
to be included in income by Employee and reported
as wages by Employer on the 2010 Form W–2. For
2011, Employee may take a deduction with respect to
the $10,000 repayment in determining adjusted gross
income, but may not deduct the interest payment. Al-
ternatively, in lieu of the $10,505.73 payment by Em-
ployee to Employer, compensation otherwise payable
to Employee in 2011 (such as salary payments) may
be reduced by $10,000 plus applicable interest, in
which case the reduction in Employee’s compensa-
tion used to repay the amount plus applicable interest
must be reported by Employer as wages on the 2011
Form W–2 issued to Employee and included in Em-
ployee’s income for 2011. In such a case, Employee
may take a deduction with respect to the $10,000 re-
payment in determining adjusted gross income, but
may not deduct the interest payment. Employer may
also adjust Employee’s account to reflect the earnings
that would have been allocated to Employee’s ac-
count had the amount been timely deferred and cred-
ited to Employee’s account balance, if such adjust-
ment for earnings is made on or before December 31,
2011.
2
Interest during 2010 = ($10,000 x (183/365) x 4.0%) = $200.55. Interest during 2011 = ($10,200.55 x (273/365) x 4.0%) = $305.18. Total interest = $200.55 + $305.18 = $505.73.
December 22, 200813122008–51 I.R.B.

C.Incorrect Payment of Amount Payable
in Same Taxable Year or Incorrect
Payment in Violation of § 409A(a)(2)(B)(i)
Corrected During Subsequent Taxable
Year
1. Relief for Amounts to which § V.C
Applies
With respect to an amount to which this
§ V.C applies, the service provider will
not be treated as having failed to comply
with § 409A(a)(2)(B)(i) (if applicable) and
the terms of the plan and any applicable
deferral election as a result of the amount
being paid or made available as described
in § V.C.2(a) of this notice.
2. Amounts to which § V.C Applies
This § V.C applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § V.C.2(a)
and the requirements of § V.C.2(b) and (c)
and §§ V.C.3 and 4 are met.
(a) A failure is described in this
§ V.C.2(a) if an amount of nonqualified
deferred compensation that, under the
terms of the plan and any applicable defer-
ral election, should not have been paid or
made available to a service provider until
a later date in the same taxable year, was
erroneously paid or made available to the
service provider during such taxable year
but more than 30 days before such later
due date, or an amount of nonqualified de-
ferred compensation that, under the terms
of the plan and any applicable deferral
election, and § 409A(a)(2)(B)(i) (require-
ment to delay for six months payments
to a specified employee upon separation
from service), (i) would have been payable
during the six months following the ser-
vice provider’s separation from service if
the service provider had not been a spec-
ified employee, (ii) because the service
provider was a specified employee the
amounts should not have been paid or
made available to a service provider within
six months after the service provider’s sep-
aration from service, and (iii) such amount
was erroneously paid or made available to
the service provider before the expiration
of such six-month period.
(b) On or before the last day of the
service provider’s taxable year immedi-
ately following the taxable year in which
the amount was paid or made available,
the service provider repays to the service
recipient the amount that was erroneously
paid or made available to the service
provider.
(c) Immediately after such repayment
the service provider has a legally binding
right to receive such amount from the ser-
vice recipient on the date that is the same
number of days after the date the amount is
repaid as the number of days from the date
the service recipient made the erroneous
payment to the service provider through
the date the amount would otherwise have
been payable under the terms of the plan
and the applicable deferral election. For
rules regarding the counting of days, see
§ III.H of this notice.
3. Reporting and Withholding
Requirements
If the requirements of this § V.C are
met, the original payment from the service
recipient to the service provider that has
been repaid to the service recipient is re-
quired to be reported as income on Form
W–2 or Form 1099, as applicable. If the
repayment by the service provider to the
service recipient and the subsequent pay-
ment from the service recipient to the ser-
vice provider both occur within the same
taxable year of the service provider, the
service provider is not permitted to deduct
the repayment, but also is not required to
include the subsequent payment in income
(and the service recipient is not required to
report the amount as income on Form W–2
or Form 1099). As part of the relief pro-
vided in this section, if the repayment by
the service provider to the service recipi-
ent and the subsequent payment from the
service recipient to the service provider do
not occur within the same taxable year of
the service provider, the service provider
is permitted a deduction in determining ad-
justed gross income equal to the amount of
the repayment, but is required to include
the subsequent payment in income (and the
service recipient is required to report the
amount as income on Form W–2 or Form
1099). To the extent that, in lieu of repay-
ment, the service recipient reduces other
compensation that would have been paid
to the service provider, the other compen-
sation that would have been paid to the ser-
vice provider, but instead is used to repay
the erroneous payment is includible in in-
come (and wages if the service provider is
an employee); however, with respect to the
amount repaid, the service provider is per-
mitted a deduction in determining adjusted
gross income equal to the amount of the re-
payment.
4. Adjustment for Earnings
For purposes of this § V.C, the ser-
vice provider’s account balance or other
amount of deferred compensation under
the plan may not be adjusted for earnings,
but may be adjusted for losses, retroac-
tive to the date the amount was erroneously
paid or made available, provided that such
adjustment must be made on or before the
applicable deadline for repayment.
5. Example
In the following example, it is assumed
that Employee is an individual whose tax-
able year is the calendar year, Employee is
not an insider as defined in § III.G of this
notice at all relevant times, and Employee
and Employer both satisfy the applicable
requirements of §§ III and IX of this no-
tice.
Example: Under a nonqualified deferred compen-
sation plan sponsored by Employer, Employee has a
legally binding right to a payment of deferred com-
pensation on the specified date of July 1, 2009. Em-
ployer erroneously pays Employee the amount of de-
ferred compensation on May 1, 2009 (61 days before
the original payment due date). Employer discovers
the error on August 1, 2010, and Employee repays
the amount to Employer on August 1, 2010. Provided
that immediately after such repayment Employee has
a legally binding right to receive the amount from
Employer on October 1, 2010 (61 days after the Au-
gust 1, 2010 repayment date) and Employer does not
repay the amount to Employee before that date, Em-
ployee will not be treated as having failed to comply
with the terms of the plan and the applicable deferral
election solely as a result of the early payment.
D.Excess Deferred Amount Corrected in
the Taxable Year Immediately Following
the Year of the Failure
1. Relief for Amounts to which § V.D
Applies
An excess amount to which this § V.D
applies is not treated as an amount deferred
under the plan.
2. Amounts to which § V.D. Applies
This § V.D applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § V.D.2(a)
and the requirements of § V.D.2(b) through
(d) and § V.D.3 are met.
2008–51 I.R.B.1313December 22, 2008

(a) A failure is described in this
§V.D.2(a)if,underthetermsofaplan
and an applicable deferral election, and
§ 409A, an amount that should not have
been deferred compensation under the
plan is erroneously credited to the service
provider’s account or otherwise treated
as deferred compensation under the plan,
and such excess amount otherwise would
have been paid to the service provider dur-
ing the service provider’s taxable year in
which the excess amount was incorrectly
credited to the service provider’s account
or otherwise treated as deferred compen-
sation under the plan.
(b) The excess amount is paid to the ser-
vice provider during the service provider’s
taxable year immediately following the
taxable year in which the excess amount
was incorrectly treated as deferred com-
pensation.
(c) The amount to which the service
provider has a legally binding right under
the plan at the end of such immediately fol-
lowing taxable year is adjusted to reflect
the payment (for example, through a re-
duction in the account balance).
(d) The service recipient does not pay
interest to (or otherwise compensate) the
service provider to reflect the time value
of money with respect to the late payment.
3. Adjustment for Earnings
The remaining account balance (or
other deferred compensation under the
plan) must be adjusted for earnings and
may be adjusted for losses retroactive to
the date the excess amount was incorrectly
credited to the service provider’s account
or otherwise incorrectly treated as deferred
under the plan, provided that such adjust-
ment must be made on or before the last
day of the service provider’s taxable year
following the year in which such amount
was incorrectly treated as deferred com-
pensation under the plan.
4. Example
In the following example, it is assumed
that Employee is an individual whose tax-
able year is the calendar year, at all rele-
vant times Employee is not an insider as
definedin§III.Gofthisnotice,andEm-
ployee and Employer both satisfy the ap-
plicable requirements of §§ III and IX of
this notice.
Example: Employee makes a timely election
pursuant to an account balance plan to defer 10%
of a bonus otherwise payable in 2010. The bonus
is $100,000. Employer erroneously defers 20% of
the bonus, or $20,000, and pays Employee $80,000
(instead of deferring $10,000 and paying Employee
$90,000). Employer pays Employee $10,000 of the
account balance under the plan on July 1, 2011. Pro-
vided that Employee includes in income the $10,000
payment in 2011, Employee is not required to include
any amount in income under § 409A. The remaining
account balance must be adjusted for earnings and
may be adjusted for losses that were allocable to such
$10,000 amount under the plan. However, Employer
may not pay Employee interest on the $10,000 erro-
neous deferral or otherwise compensate Employee
for the loss of the use of such funds.
E.Correction of Exercise Price of
Otherwise Excluded Stock Rights
1. Relief for Amounts to which § V.E
Applies
If this § V.E applies to a stock right, the
stock right is treated from the date of grant
as not providing for nonqualified deferred
compensation for purposes of § 409A.
2. Amounts to which § V.E. Applies
This § V.E applies if during a service
provider’s taxable year a failure occurs that
is described in § V.E.2(a) and the require-
ments of § V.E.2(b) are met.
(a) A failure is described in this
§V.E.2(a)if,underthetermsofastock
right, the stock right would not provide
for a deferral of compensation under
§ 1.409A–1(b)(5)(i)(A) (excluded stock
options) or § 1.409A–1(b)(5)(i)(B) (ex-
cluded stock appreciation rights), except
that the exercise price of the stock right
is erroneously established at less than the
fair market value of the underlying stock
onthedateofgrant.
(b) Before the stock right is exercised
and not later than the last day of the service
provider’s taxable year immediately fol-
lowing the service provider’s taxable year
in which the service recipient granted the
service provider the stock right, the exer-
cise price is reset to an amount equal to or
exceeding the fair market value of the un-
derlying stock on the date of grant, and at
all times before such increase in the exer-
cise price the stock right otherwise would
not have provided for a deferral of com-
pensation for purposes of § 409A.
3. Example
In the following example, it is assumed
that Employee is an individual whose tax-
able year is the calendar year, Employee is
not an insider as defined in § III.G of this
notice at all relevant times, and Employee
and Employer both satisfy the applicable
requirements of §§ III and IX of this no-
tice.
Example. On January 1, 2009, Employer grants
Employee a stock option to purchase 100 shares of
stock, and the stock option otherwise would not pro-
vide for a deferral of compensation under § 409A
except that due to an administrative error the exer-
cise price is set at an amount below the fair market
value of the stock on January 1, 2009. On July 1,
2010, Employee partially exercises the stock option
and purchases 40 shares, but retains a stock option to
purchase 60 shares. Provided that before the later of
January 1, 2011 or the date the remaining stock op-
tion to purchase 60 shares is exercised, the exercise
price of the stock option to purchase 60 shares is re-
set to a price at or above the fair market value of the
underlying stock on January 1, 2009, the stock option
to purchase 60 shares may qualify for the relief pro-
vided in this section. Because the exercise price was
not reset before the July 1, 2010 exercise, the portion
of the stock option that was exercised to purchase 40
shares is not eligible for the relief provided in this sec-
tion.
VI. RELIEF FOR CERTAIN
OPERATIONAL FAILURES
INVOLVING LIMITED AMOUNTS
A.In General
If an operational failure to comply with
§ 409A(a) occurs, but the operational fail-
ure qualifies for the relief provided in this
§ VI and the taxpayer meets the require-
ments of this § VI, the amount required to
be included in income under § 409A(a) as
a result of the failure, and the resulting ad-
ditional taxes under § 409A, are limited in
accordance with the provisions of this sec-
tion. The relief provided by this section
is not available with respect to any fail-
ure unless all of the requirements of this
section (including anyapplicable require-
ment to file an original or amended return,
but not including the requirements of § IX
of this notice) have been satisfied not later
than the end of the second taxable year of
the service provider following the taxable
year of the service provider in which such
failure occurred. The relief provided in
this section is available even if additional
relief would otherwise be available under
§ V or § VII of this notice if certain fur-
ther actions were taken, so that the relief
December 22, 200813142008–51 I.R.B.

provided in this section may be utilized in
lieu of the relief otherwise available under
§ V or § VII of this notice.
B.Failure to Defer Limited Amount not
Corrected in the Same Taxable Year and
Certain Erroneous Payments of Limited
Amounts
1. Relief for Amounts to which § VI.B
Applies
With respect to an amount to which
§ VI.B applies, the amount includible in
income under § 409A(a) as a result of a
payment described in § VI.B.2(a) is lim-
ited to the amount that should have been
treated as deferred compensation under
the plan (or should have continued to be
deferred compensation under the plan) but
was instead paid or made available to the
service provider, and does not include any
other amounts deferred under the plan.
In addition, with respect to such amount
includible in income under § 409A(a), the
service provider is required to pay the ad-
ditional tax under § 409A(a)(1)(B)(i)(II)
(the additional 20% tax), but is not re-
quired to pay the additional tax under
§ 409A(a)(1)(B)(i)(I) (the premium inter-
est tax).
2. Amounts to which § VI.B Applies
This § VI.B applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § IV.B.2(a)
and the requirements of § IV.B.2(b) and (c)
and§VI.B.3aremet.
(a) A failure is described in this
§ IV.B.2(a) if an amount should have been
treated as deferred compensation under
the terms of the plan and any applicable
deferral election, and § 409A, but the
amount was not credited to the service
provider’s account or otherwise treated as
deferred compensation during the service
provider’s taxable year, or did not remain
deferred compensation after the end of
such year, and because the amount was not
credited to the service provider’s account
or otherwise treated as deferred compen-
sation under the plan during such year,
or did not remain deferred compensation
under the plan after the end of such year,
the amount was paid or made available
to the service provider during the service
provider’s taxable year. For purposes of
this section, a payment of an amount (in-
cluding a payment of an amount that is one
of a series of installment payments or life
annuity payments) that (a) under the terms
of the plan and § 409A(a)(2)(B)(i) is re-
quired to be delayed for at least six months
following a separation from service, but is
paid within that six-month-period, or (b)
is paid in the same taxable year in which
the amount was payable under the plan,
but more than 30 days before such due
date, may be treated as the payment of an
amount that should have continued to be
deferred compensation.
(b) Sections IV.A, IV.B, V.B, V.C, VII.B
and VII.C of this notice do not apply be-
cause relief is not available under such sec-
tions with respect to the failure, the failure
is not corrected under such sections, or oth-
erwise.
(c) The amount paid or made available
to the service provider does not exceed the
limit on elective deferrals that would apply
to a qualified plan under § 402(g)(1)(B) for
the year of the operational failure. For pur-
poses of this section, the plan includes any
arrangements treated as a single plan un-
der § 1.409A–1(c), so that this section will
apply only if any and all erroneous pay-
ments under the plan, in the aggregate, of
amounts that otherwise should have been
treated as deferred compensation with re-
spect to the service provider during the tax-
able year (or should have continued to be
deferred compensation during the taxable
year), do not exceed the limit on elective
deferrals that would apply to a qualified
plan under § 402(g)(1)(B) for such year.
3. Reporting and Filing Requirements
The service recipient must report such
payment on a Form W–2 (or Form W–2c)
or Form 1099 (or corrected Form 1099), as
applicable, as an amount includible in in-
come under § 409A for the year in which
the payment was made, including report-
ing such amount on a Form W–2, Box 12
using Code Z, if applicable. The service
provider must include such amount in in-
come on and pay the additional taxes under
§409Aasdescribedinthissectionwithan
original or amended federal income tax re-
turn for the taxable year in which the pay-
ment was made.
4. Examples
It is assumed for purposes of the follow-
ing examples that Employee is an individ-
ual whose taxable year is the calendar year
and Employee and Employer both satisfy
the applicable requirements of §§ III and
IX of this notice.
Example 1: Employee makes a timely election
to defer 10% of a bonus payable in 2008 pursuant
to an account balance plan. The bonus is $100,000.
Employer erroneously defers only 8% of the bonus,
or $8,000, and pays Employee $92,000 (instead of
deferring $10,000 and paying Employee $90,000).
Employer discovers the error on February 1, 2010.
As a payment to Employee, Employer must treat
the amount as a wage payment for employment tax
and reporting purposes, as appropriate, including
reporting as income and wages on the 2008 Form
W–2. Employer is permitted to report as income
under § 409A on the 2008 Form W–2 (or 2008 Form
W–2c), Box 12, using Code Z, only $2,000, and
Employee is permitted to include in income under
§ 409A for 2008 only $2,000. Furthermore, Em-
ployee is permitted to pay the additional 20% tax
only with respect to the $2,000 (or $400 in additional
income tax), and is not required to pay the premium
interest tax. However, to qualify for the relief, Em-
ployee must file an original or amended 2008 income
tax return reflecting the additional tax on or before
December 31, 2010.
Example 2: Employee is a specified employee
entitled under a nonqualified deferred compensation
plan to a life annuity commencing upon the first
day of the seventh month following the specified
employee’s separation from service. The annuity
payments are $5,000 per month. Employee separates
from service on April 18, 2008, and is scheduled
to receive an initial annuity payment on November
1, 2008. Due to a miscalculation of the specified
employee’s separation from service date, Employee
receives a $5,000 payment on October 1, 2008,
before the end of the six-month period following
Employee’s separation from service. Employer and
Employee do not discover the error until 2010. Em-
ployer must treat the amount paid to Employee as
awagepaymentforemployment tax and reporting
purposes, as appropriate, including reporting as in-
come on the 2008 Form W–2. Employer is permitted
to report as income under § 409A on the 2008 Form
W–2 (or 2008 Form W–2c), Box 12, using Code Z,
only $5,000, and Employee is permitted to include in
income under § 409A in 2008 only $5,000. Further-
more, Employee is permitted to pay the additional
20% tax only with respect to the $5,000 (or $1,000
in additional income tax), and is not required to pay
the premium interest tax. However, to qualify for the
relief, Employee must file an original or amended
2008 income tax return reflecting the additional tax
on or before December 31, 2010.
2008–51 I.R.B.1315December 22, 2008

C.Limited Excess Deferred Amount not
Corrected in the Same Taxable Year
1. Relief for Amounts to which § VI.C
Applies
With respect to amounts to which
§ VI.C applies, the amount includible
in income under § 409A(a) as a result
of an operational failure described in
§ VI.C.2(a) is limited to the excess amount
paid to the service provider, and does
not include any other deferred compensa-
tion under the plan, and such amount is
includible in income only when paid to
the service provider in accordance with
this section. In addition, with respect to
this amount includible in income under
§ 409A(a), the service provider is required
to pay the additional 20% tax, but is not
required to pay the premium interest tax.
2. Amounts to which § VI.C Applies
This § VI.C applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § VI.C.2(a)
and the requirements of § VI.C.2(b)
through(d)and§§VI.C.3and4aremet:
(a) A failure is described in this
§ VI.C.2(a) if, under the terms of the plan
and any applicable deferral election, and
§ 409A, an amount of deferred compensa-
tion under the plan should have been paid
or made available to the service provider
during the service provider’s taxable year,
or an amount is treated as deferred com-
pensation under the plan that should have
been paid or made available to the service
provider during the service provider’s tax-
able year, but such amount erroneously is
not paid or made available to the service
provider.
(b) Sections IV.C, V.D and VII.D of this
notice do not apply because relief is not
available under such sections with respect
to the failure, the failure is not corrected
under such sections, or otherwise.
(c) The amount that should have been
paid or made available to the service
provider during that service provider’s
taxable year does not exceed the limit on
elective deferrals that would apply to a
qualified plan under § 402(g)(1)(B) for
such year. For purposes of this section,
the plan includes any arrangements treated
as a single plan under § 1.409A–1(c), so
that this section will apply only if any and
all erroneous deferrals under the plan, in
the aggregate, of amounts that otherwise
should have been paid during the ser-
vice provider’s taxable year to the service
provider do not exceedthe applicable limit
on elective deferrals that would apply to a
qualified plan under § 402(g)(1)(B).
(d) By the end of the service provider’s
second taxable year following the year
in which the failure occurred, the service
recipient pays the service provider the
amount that should have been paid or
made available to the service provider.
3. Reporting and Withholding
The service recipient must report such
payment on a Form W–2 or Form 1099, as
applicable, for the year of the payment in
accordance with the requirements of this
section. If the servicerecipient properly
reports the payment as includible in in-
come under § 409A on a Form W–2, if
applicable, for the year in which the pay-
ment was made, including reporting such
amount on Form W–2, Box 12 using Code
Z, the service recipient will not be subject
to penalties or liability for the failure to
properly withhold under § 3402(d). The
service provider must include such amount
in income and pay the additional taxes un-
der § 409A(a) as described in this section
on an original or amended federal income
tax return.
4. Adjustment for Earnings
Any earnings allocable to such amounts
through the date of the payment must ei-
ther be forfeited or added to the payment to
the service provider, and any losses alloca-
ble to such amounts through the date of the
payment must either be permanently disre-
garded or subtracted from the payment to
the service provider.
5. Example
It is assumed for purposes of the follow-
ing example that Employee is an individ-
ual whose taxable year is the calendar year
and Employee and Employer both satisfy
the applicable requirements of §§ III and
IX of this notice.
Example: Employee makes a timely election to
defer 8% of a bonus payable in 2009 into an account
balance plan. The bonus is $100,000. Employer er-
roneously defers 10% of the bonus, or $10,000, and
pays Employee $90,000 (instead of deferring $8,000
and paying Employee $92,000). Employer discovers
the error on February 1, 2010. On March 1, 2010,
at which time Employee’s account balance includes
$150 in earnings on the excess $2,000 credited to
the account, Employer pays Employee $2,150. Em-
ployer reports the $2,150 as income under § 409A on
the 2010 Form W–2, Box 1 and Box 12, using Code
Z. Provided that Employee reports such income and
pays the applicable taxes, including the additional
§ 409A taxes, on a 2010 Form 1040, Employee is not
required to include any additional amounts deferred
under the plan in income under § 409A(a) or to in-
clude any amount in income under § 409A for years
before 2010, and with respect to the $2,150 includi-
ble in income under § 409A is required to pay only
the additional 20% tax (or $425 in additional income
tax), and not the premium interest tax. Employer may
also have paid Employee only the $2,000 excess de-
ferred amount if the $150 in earnings on such amount
were forfeited.
VII. RELIEF FOR CERTAIN OTHER
OPERATIONAL FAILURES
A.General Requirements
If an operational failure to comply with
§ 409A(a) occurs but the operational fail-
ure qualifies for the relief provided in this
§ VII and is corrected in accordance with
this § VII, the amount required to be in-
cluded in income under § 409A(a) as a re-
sult of the failure, and the resulting addi-
tional taxes under § 409A, are limited in
accordance with the provisions of this sec-
tion. The relief provided by this section is
not available with respect to any failure un-
less all of the requirements of this section
(including any requirement to file an origi-
nal or amended return, but not the require-
ments of § IX of this notice) have been sat-
isfied not later than the end of the second
taxable year of the service provider follow-
ing the taxable year of the service provider
in which such failure occurred.
B.Failure to Defer Amount not Corrected
in the Same Taxable Year and Certain
Erroneous Payments
1. Relief for Amounts to which § VII.B
Applies
With respect to amounts to which
§VII.B applies, the amount includible in
income under § 409A(a) as a result of a
payment described in § VII.B.2(a) is lim-
ited to the amount that should have been
treated as deferred compensation under
the plan (or should have continued to be
deferred compensation under the plan) but
was instead paid or made available to the
service provider, and does not include any
other amounts deferred under the plan.
December 22, 200813162008–51 I.R.B.

In addition, with respect to such amount
includible in income under § 409A(a), the
service provider is required to pay the ad-
ditional tax under § 409A(a)(1)(B)(i)(II)
(the additional 20% tax) for the year in
which the amount is includible in income
under § 409A(a) (the year of the failure),
but is not required to pay the additional
tax under § 409A(a)(1)(B)(i)(I) (the pre-
mium interest tax). If the requirements of
this section are met, for taxable years fol-
lowing the year during which the failure
occurred, the amount repaid by the service
provider is treated as an amount previ-
ously included in income for purposes of
§ 409A(c).
2. Amounts to which § VII.B Applies
This § VII.B applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § VII.B.2(a)
and the requirements of § VII.B.2(b)
through(d)and§§VII.B.3and4aremet:
(a) A failure is described in this
§ VII.B.2(a) if an amount of nonquali-
fied deferred compensation that, under
the terms of the plan and any applica-
ble deferral election, and § 409A, should
not have been paid or made available
to a service provider in a taxable year
of the service provider, was erroneously
paid or made available to the service
provider in that year, and such payment
does not fail to meet the requirements of
§ 409A(a)(2)(B)(i) (requirement to delay
for six months payments of a specified
employee upon separation from service).
For rules relating to correction of certain
payments that fail to meet such require-
ments, see § VII.C of this notice;
(b) Sections IV.A, IV.B, V.B, V.C and
VI.B of this notice do not apply because
relief is not available under such sections
with respect to such failure, the failure is
not corrected under such sections, or oth-
erwise;
(c) The service provider repays to the
service recipient the amount that was er-
roneously paid or made available to the
service provider on or before the last day
of the service provider’s second taxable
year following the year in which the erro-
neous overpayment occurred, and imme-
diately after such repayment the service
provider has a legally binding right under
the plan to be paid the amount that would
have been due if such amount had not been
erroneously paid or made available to the
serviceprovider,atthesametimeandin
the same form of payment that the amount
would have been payable if such amount
had not been erroneously paid or made
available to the service provider.
(d) If the service provider is an insider
(as defined in this § III.G) with respect to
the service recipient,the service provider
pays interest to the service recipient at
thetimetheserviceproviderrepaysthe
amount to the service recipient at a rate
not less than the short-term applicable Fed-
eral rate (AFR) under § 1274(d)(1), based
on annual compounding, for the month
in which the erroneous payment was paid
or made available, compounded as of the
end of the service provider’s taxable year.
For this purpose, the interest rate is the
short-term AFR for the month in which
the erroneous payment was paid or made
available. If the amount paid on a repay-
ment date is less than the entire erroneous
payment, for each repayment date the in-
terest calculation is applied by substituting
the unpaid balance immediately before the
repayment for the amount of the erroneous
payment.
3. Reporting and Withholding
The service recipient must report the er-
roneous payment as an amount includible
in income under § 409A on a Form W–2
(or Form W–2c), under Box 12, Code Z,
or Form 1099 (or corrected Form 1099),
as applicable, for the year in which the
erroneous payment was made. The ser-
vice provider must include the amount of
the erroneous payment in income under
§ 409A on and pay the additional taxes un-
der § 409A(a) with an original or amended
federal income tax return for the year in
which the erroneous payment was made,
and must not claim a deduction or other ad-
justment reflecting the repayment for the
year in which the service provider repays
the amount to the service recipient.
4. Adjustment for Earnings
For purposes of this § VII.B, the ser-
vice provider’s account balance or other
amount of deferred compensation under
the plan may be adjusted for earnings (or
losses) retroactive to the date the amount
should have been credited to the service
provider’s account or otherwise deferred
(or if the amount should have otherwise
remained deferred compensation after the
end of the service provider’s taxable year,
retroactive to the date the amount was paid
or made available), provided that such ad-
justment must be made on or before the ap-
plicable deadline for repayment.
5. Example
It is assumed for purposes of the fol-
lowing example that Employee is an indi-
vidual whose taxable year is the calendar
year, at all relevant times Employee is not
an insider with respect to Employer as de-
finedin§III.G,andEmployeeandEm-
ployer both satisfy the applicable require-
ments of §§ III and IX of this notice.
Example: Employee makes a timely election to
defer 50% of a bonus payable in 2008 pursuant to an
account balance plan. The bonus is $300,000. Em-
ployer erroneously defers only 25% of the bonus, or
$75,000, and pays Employee $225,000 (instead of
deferring $150,000 and paying Employee $150,000).
Employer discovers the error on June 1, 2010. Em-
ployee pays $75,000 to Employer on July 1, 2010 (or
alternatively, Employer retains $75,000 of compen-
sation that Employee was otherwise due on July 1,
2010). As a payment to Employee, Employer must
treat the 2008 payment asawagepaymentforem-
ployment tax and reporting purposes, as appropriate,
including reporting as income and wages on the 2008
Form W–2. Employer is permitted to report as in-
come under § 409A on the 2008 Form W–2 (or 2008
Form W–2c), Box 12, using Code Z, only $75,000,
and Employee is permitted to include in income under
§ 409A for 2008 only $75,000. Furthermore, for 2008
Employee is permitted to pay the additional 20% tax
only with respect to the $75,000 (or $15,000 in ad-
ditional income tax), and is not required to pay the
premium interest tax. The 2010 Form W–2 provided
to the Employee must not reflect any reduction in in-
come due to the repayment, including if the repay-
ment were made through the reduction in compen-
sation otherwise payable to the Employee, and Em-
ployee is not permitted a deduction or any other ad-
justment to income on Employee’s 2010 Form 1040
reflecting the repayment. For future taxable years,
Employee is treated for purposes of § 409A(c) as
having previously included in income $75,000 of the
amount deferred under the plan.
C.Incorrect Payment of Amount Payable
in Same Taxable Year or Incorrect
Payment in Violation of § 409A(a)(2)(B)(i)
not Corrected in the Same Taxable Year
as the Failure
1. Relief for Amounts to which § VII.C
Applies
With respect to amounts to which
§ VII.C applies, the amount includible in
income under § 409A(a) as a result of a
2008–51 I.R.B.1317December 22, 2008

payment described in § VII.C.2(a) is lim-
ited to the amount that should have been
treated as deferred compensation under
the plan (or should have continued to be
deferred compensation under the plan) but
was instead paid or made available to the
service provider, and does not include any
other amounts deferred under the plan.
In addition, with respect to such amount
includible in income under § 409A(a), the
service provider is required to pay the ad-
ditional tax under § 409A(a)(1)(B)(i)(II)
(the additional 20% tax), but is not re-
quired to pay the additional tax under
§ 409A(a)(1)(B)(i)(I) (the premium inter-
est tax). Provided thatthe requirements of
this section are met, for taxable years fol-
lowing the year during which the failure
occurred, the amount repaid by the service
provider is treated as an amount previ-
ously included in income for purposes of
§ 409A(c).
2. Amounts to which § VII.C Applies
This § VII.C applies if during a service
provider’s taxable year an operational fail-
ure occurs that is described in § VII.C.2(a)
and the requirements of § VII.C.2(b)
through(d)and§§VII.C.3and4aremet.
(a) A failure is described in this
§ VII.C.2(a) if an amount of nonquali-
fied deferred compensation that, under the
terms of the plan and any applicable defer-
ral election, should not have been paid or
made available to a service provider until
a later date in the same taxable year, erro-
neously was paid or made available to the
service provider during such taxable year
more than 30 days before such later date,
or an amount of nonqualified deferred
compensation that, under the terms of the
plan and any applicable deferral election,
and § 409A(a)(2)(B)(i) (requirement to de-
lay for six months payments to a specified
employee upon separation from service),
(i) would have been payable less than six
months after the service provider’s sepa-
ration from service if the service provider
had not been a specified employee, (ii)
because the service provider was a spec-
ified employee the amounts should not
have been paid or made available within
the six-month period following the service
provider’s separation from service, and
(iii) such amounts were erroneously paid
or made available to the service provider
within such six-month period.
(b) Sections IV.B, V.C, and VI.B of this
notice do not apply because relief is not
available under such sections with respect
to such failure, the failure is not corrected
under such sections, or otherwise.
(c) On or before the end of the second
taxable year during which the failure oc-
curred, the service provider repays to the
service recipient the amount that was erro-
neously paid or made available to the ser-
vice provider.
(d) Immediately after such repayment,
the service provider has a legally binding
right to receive such amount from the ser-
vice recipient on the date that is that same
number of days after the amount is repaid
as the number of days from the date the ser-
vice recipient made the erroneous payment
to the service provider through the date
theamountwouldotherwisehavebeen
payable under the terms of the plan and the
applicable deferral election, and the repaid
amount is not paid or made available to the
service provider before such date (for rules
regarding the counting of days, see § III.H
of this notice).
3. Reporting and Withholding
The service recipient must report the er-
roneous payment as an amount includible
in income under § 409A on a Form W–2
(or Form W–2c), under Box 12, Code Z,
or Form 1099 (or corrected Form 1099),
as applicable, for the year in which the
erroneous payment was made. The ser-
vice provider must include the amount of
the erroneous payment in income under
§ 409A on and pay the additional taxes un-
der § 409A(a) with an original or amended
federal income tax return for the year in
which the erroneous payment was made,
and not claim a deduction or other adjust-
ment reflecting the repayment for the year
in which the service provider repays the
amount to the service recipient.
4. Adjustment for Earnings
For purposes of this § VII.C, the ser-
vice provider’s account balance or other
amount of deferred compensation under
the plan may not be adjusted for earnings,
but may be adjusted for losses, retroac-
tive to the date the amount was erroneously
paid or made available, provided that such
adjustment must be made on or before the
applicable deadline for repayment.
5. Examples
In each of the following examples, it
is assumed that Specified Employee is an
individual whose taxable year is the cal-
endar year, at all relevant times Specified
Employee is a specified employee of Em-
ployer for purposes of § 409A(a)(2)(B)(i)
and an insider with respect to Employer as
defined in § III.G of this notice, and Spec-
ified Employee and Employer both satisfy
the applicable requirements of §§ III and
IX of this notice.
Example 1: Under a nonqualified deferred com-
pensation plan sponsored by Employer, Specified
Employee has a legally binding right to a $100,000
payment of deferred compensation on the first day of
the seventh month following Specified Employee’s
separation from service. Specified Employee sep-
arates from service on November 15, 2008 so that
the payment is due on June 1, 2009. Employer erro-
neously pays Specified Employee $100,000 on April
1, 2009 (61 days before the due date). Employer
discovers the error on July 1, 2010, and Specified
Employee repays the $100,000 to Employer on
July 1, 2010. Immediately after such repayment
Specified Employee has a legally binding right to
receive $100,000 from Employer on August 31, 2010
(61 days after the July 1, 2010 repayment date) and
Employer does not repay the amount to Specified
Employee before that date. Employer treats the
payment as a 2009 wage payment for employment
tax and reporting purposes, as appropriate, including
reporting as income and wages on the 2009 Form
W–2. Employer must report as income under § 409A
on the 2009 Form W–2 (or 2009 Form W–2c), Box
12, using Code Z, only the $100,000 payment, and
Specified Employee is permitted to include in income
under § 409A for 2009 only $100,000. Furthermore,
Specified Employee is permitted to pay the additional
20% tax only with respect to the $100,000 (or
$20,000 in additional income tax), and is not required
to pay the premium interest tax. The 2010 Form W–2
provided to Specified Employee must not reflect any
reduction in income due to the repayment, including
if the repayment were made through the reduction
in compensation otherwise payable to Specified
Employee, and Specified Employee is not permitted
a deduction or any other adjustment to the 2010 Form
1040 reflecting the repayment. For 2010, Specified
Employee is treated as having previously included in
income $100,000 of the amount deferred under the
plan for purposes of § 409A(c).
Example 2: Under a nonqualified deferred com-
pensation plan sponsored by Employer, Specified
Employee has a legally binding right to a $100,000
payment of deferred compensation on the specified
date of July 1, 2009 (so that the payment is not sub-
ject to § 409A(a)(2)(B)(i)). Employer erroneously
pays Specified Employee the $100,000 on May 1,
2009 (61 days before the due date). Employer dis-
covers the error on December 1, 2010, and Specified
Employee repays the amount to Employer on De-
cember 1, 2010. Immediately after such repayment
Specified Employee has a legally binding right to
receive the amount from Employer on January 31,
2011 (61 days after the December 1, 2010 repayment
December 22, 200813182008–51 I.R.B.

date) and Employer does not repay the amount to
Specified Employee before that date. Employer
treats the 2009 payment as a wage payment for em-
ployment tax and reporting purposes, as appropriate,
including reporting as income and wages on the
2009 Form W–2. Employer is permitted to report
as income under § 409A on the 2009 Form W–2 (or
2008 Form W–2c), Box 12, using Code Z, only the
$100,000 payment, and Specified Employee is per-
mitted to include in income under § 409A for 2009
only $100,000. Furthermore, Employee is permitted
to pay the additional 20% tax only with respect to the
$100,000 (or $20,000 in additional income tax), and
is not required to pay the premium interest tax. The
2010 Form W–2 provided to Specified Employee
must not reflect any reduction in income due to the
repayment, including if the repayment were made
through the reduction in compensation otherwise
payable to Specified Employee, and Specified Em-
ployee is not permitted a deduction or any other
adjustment to the 2010 Form 1040 reflecting the
repayment. Beginning with the taxable year 2010,
Specified Employee is treated as having previously
included in income $100,000 of the amount deferred
under the plan for purposes of § 409A(c).
D.Excess Deferred Amount not Corrected
in the Same Taxable Year
1. Relief for Amounts to which § VII.D
Applies
With respect to amounts to which
§ VII.D applies, the amount includible in
income under § 409A(a) as a result of a
failure described in § VII.D.2(a) is limited
to the excess amount paid to the service
provider, and does not include any other
deferred compensation under the plan,
and the amount is includible in income
only when paid to the service provider in
accordance with this section. In addition,
with respect to this amount includible
in income under § 409A(a), the service
provider is required to pay the additional
20% tax, but is not required to pay the
premium interest tax. Provided that the
service provider includes such amount
in income, pays the additional taxes and
otherwise meets the requirements of this
notice, for taxable years after the year of
the failure the amount is treated as previ-
ously included in income for purposes of
§ 409A(c).
2. Amounts to which § VII.D Applies
This § VII.D applies if an opera-
tional failure occurs during a service
provider’s taxable year that is described
in § VII.D.2(a) and the requirements of
§ VII.D.2(b) through (c) and §§ VII.D.3
and4aremet.
(a) A failure is described in this
§ VII.D.2(a) if, under the terms of the plan
and any applicable deferral election, and
§ 409A, an amount of deferred compensa-
tion under the plan should have been paid
or made available to the service provider
during the service provider’s taxable year,
or an amount is treated as deferred com-
pensation under the plan that should have
been paid or made available to the service
provider during the service provider’s tax-
able year, but such amount erroneously is
not paid or made available to the service
provider;
(b) Sections IV.C, V.D and VI.C of this
notice do not apply because relief is not
available under such sections with respect
to the failure, the failure is not corrected
under such sections, or otherwise;
(c) By the end of the service provider’s
second taxable year following the taxable
year during which the failure occurred, the
service recipient pays the service provider
the amount that should have been paid or
made available to the service provider.
3. Reporting and Withholding
The service recipient must report such
payment on a Form W–2 (or Form W–2c)
or Form 1099 (or corrected Form 1099),
as applicable, for the taxable year in which
the payment was scheduled to be made un-
der the terms of the plan (or, in the case of
an amount that should not have been de-
ferred, the taxable year in which the pay-
ment was scheduled to be made but for the
erroneous deferral). If the service recipient
properly reports the payment as includible
in income under § 409A on a Form W–2,
if applicable, for the year in which the pay-
ment was scheduled to be made, includ-
ing reporting such amount on Form W–2,
Box 12 using Code Z, the service recipient
will not be subject to penalties or liability
for the failure to properly withhold under
§ 3402(d). The service provider must in-
clude such amount in income on and pay
the additional taxes under § 409A(a) with
an original or amended federal income tax
return for the taxable year in which the
payment was scheduled to be made under
the terms of the plan (or, in the case of an
amount that should not have been deferred,
the taxable year in which the payment was
scheduled to be made but for the erroneous
deferral).
4. Adjustment for Earnings
The remaining account balance (or
other deferred compensation under the
plan) must be adjusted for earnings and
may be adjusted for losses retroactive to
the date the excess amount was incorrectly
credited to the service provider’s account
or otherwise incorrectly treated as de-
ferred under the plan, provided that such
adjustment must be made on or before the
last day of the service provider’s taxable
year in which such amount was paid to the
service provider under § VII.D.2(c). The
service recipient may not pay the service
provider interest, or otherwise compensate
the service provider for the use of such
funds.
5. Example
It is assumed for purposes of the fol-
lowing example that Employee is an in-
dividual whose taxable year is the calen-
dar year, at all relevant times Employee
is an insider with respect to Employer as
defined in § III.G of this notice, and Em-
ployee and Employer both satisfy the ap-
plicable requirements of §§ III and IX of
this notice.
Example: Employee makes a timely election to
defer 10% of a bonus payable in 2009 into an account
balance plan. The bonus is $300,000. Employer
erroneously defers 20% of the bonus, or $60,000,
and pays Employee $240,000 (instead of deferring
$30,000 and paying Employee $270,000). Employer
discovers the error on February 1, 2010, so that the
excess deferred amount of $30,000 is not corrected by
December 31, 2009. On March 1, 2010, at which time
Employee’s account balance includes $1,500 in earn-
ings on the excess $30,000 credited to the account,
Employer pays Employee $30,000 and Employee for-
feits the $1,500 in earnings. Employer reports the
$30,000 as income under § 409A on the 2009 Form
W–2, Box 1 and Box 12, using Code Z. Provided that
Employee reports such income and pays the applica-
ble taxes, including the additional § 409A taxes, on a
timely filed 2009 Form 1040 (or amended 2009 Form
1040), and satisfies the other applicable requirements
of this § VII, Employee is permitted to include in in-
come under § 409A only $30,000 and to pay only
the additional 20% tax (or $6,000 in additional in-
come tax), and not the premium interest tax. Begin-
ning with the taxable year 2010, Specified Employee
is treated as having previously included in income
$30,000 of the amount deferred under the plan for
purposes of § 409A(c).
VIII. SPECIAL TRANSITION RULE
FOR NON-INSIDERS
With respect to a service provider that
was not an insider at any time during the
2008–51 I.R.B.1319December 22, 2008

service provider’s taxable year in which
a failure occurred, such service provider
mayusethereliefprovidedin§V.B,§V.C
or § V.D of this notice with respect to
an operational failure addressed by such
sections that occurred on or before De-
cember 31, 2007, in which case for pur-
poses of applying such section the service
provider’s taxable year ending in 2009 will
be treated as the taxable year next follow-
ing the taxable year during which the fail-
ure occurred. With respect to an erro-
neous early payment addressed by § V.B,
if the original due date for the payment
would have occurred on or before Decem-
ber 31, 2009, the amount may be treated
for purposes of applying § V.B as other-
wise payable under the terms of the plan
during the year immediately following the
year of the failure for purposes of qualify-
ing for the relief.
IX. INFORMATION AND
REPORTING REQUIREMENTS
A.InformationRequiredwithRespect
to Correction of an Operational Failure
in the Same Taxable Year as the Failure
Occurs
A service recipient described in § IV
of this notice must attach to its timely-
filed (including extensions) original fed-
eral income tax return for its taxable year
in which the failure occurred a statement
entitled “§ 409A Relief under § IV of No-
tice 2008–113” setting out the informa-
tion required by § IX.A.1 of this notice,
and must provide to each service provider
affected by such failure a statement enti-
tled “§ 409A Relief under § IV of Notice
2008–113” setting out the information re-
quiredby§IX.A.2ofthisnoticebynolater
than the date (with extensions) on which it
is required to provide an information re-
turn (Form W–2 or Form 1099) to such
service provider for the calendar year in
which such failure occurred (or if no in-
formation return is required for such ser-
vice provider, not later than the January
31 following the calendar year in which
such failure occurred). Notwithstanding
the foregoing, to qualify for the relief de-
scribed in § IV.D of this notice (Correc-
tion of Exercise Price of Otherwise Ex-
cluded Stock Rights), the service recipient
is not required to provide a statement to
such service provider with respect to such
failure. In addition, eachtaxpayer relying
on the relief provided in § IV of this no-
tice must make reasonable efforts to pro-
vide notice to the examining agent upon
the commencement of an examination of
such taxpayer’s federal tax return that the
taxpayer was relying upon the relief pro-
vided under this notice for years covered
by the examination (except in the case of a
service provider for whom a correction has
been made under § IV.D of this notice).
1. Attachment to Service Recipient Tax
Return for Failures Described in § IV
The service recipient must attach a
statement to its federal income tax return
stating that it is relying upon § IV of this
notice with respect to a correction of a
failure to comply with § 409A and setting
out the following information with respect
to each such failure:
(a) The name and taxpayer identifica-
tion number of each service provider af-
fected by the failure and whether such ser-
vice provider is an insider with respect
to the service recipient. Where the same
or a substantially similar operational fail-
ure has occurred with respect to multi-
ple service providers, the information re-
quired in § IX.A.1(b) through (e) of this
notice may be supplied only once with
respect to such operational failure, pro-
vided that the identification of each service
provider affected by the operational failure
in this § IX.A.1(a) references such infor-
mation and the amount involved in the op-
erational failure with respect to such ser-
vice provider.
(b) Identification of the nonqualified
deferred compensation plan with respect to
which such failure occurred.
(c) A brief description of the failure and
the circumstances under which it occurred,
including the amount involved and date on
which the failure occurred.
(d) A brief description of the steps taken
to correct the failure and the date on which
such correction was completed.
(e) A statement that the operational fail-
ure is eligible for the correction under the
terms of this notice, and that the service re-
cipient has taken all actions required, and
otherwise met all requirements, for such
correction.
2. Information to be Provided to Service
Provider for Failures Described in § IV
The service recipient must provide
the following information to each service
provider affected by correction of a failure
to comply with § 409A who is entitled to
relief under § IV of this notice (other than
§ IV.D of this notice (Correction of Exer-
cise Price of Otherwise Excluded Stock
Rights)) with respect to such failure:
(a) A statement that the service provider
is entitled to the relief provided in § IV
of this notice with respect to a failure to
comply with § 409A.
(b) The information described in
§ IX.A.1(b) through (e) of this notice.
B.Information Required with Respect to
Relief for Certain Operational Failures
A service recipient described in § V,
§ VI, or § VII of this notice must attach
to its timely-filed (including extensions)
original federal income tax return for its
taxable year in which it discovers the fail-
ure, and for a service recipient described
in § VIII of this notice its timely-failed
(including extensions) original federal
income tax return for the taxable year
including January 1, 2009, a statement
entitled “§ 409A Relief under § [INSERT
APPROPRIATE SECTION]ofNotice
2008–113” setting out the information
required by § IX.B.1 of this notice. In
addition, not later than the date (with ex-
tensions) on which it is required to provide
an information return (Form W–2 or 1099)
for the calendar year in which it discovers
such failure to a service provider who is
affected by such failure (or if no infor-
mation return is required for such service
provider, not later than the January 31
following the calendar year in which it
discovers such failure), or in the case of a
service recipient described in § VIII, not
later than January 31, 2010, such service
recipient must provide to each such ser-
vice provider a statement entitled Ҥ 409A
Relief under § [INSERT APPROPRIATE
SECTION] of Notice 2008–113” setting
out the information required by § IX.B.2
of this notice. A service provider who is
relying on the relief provided in § V, § VI,
or § VII of this notice with respect to a fail-
ure to comply with § 409A must attach to
the service provider’s timely-filed (includ-
ing extensions) original federal income tax
December 22, 200813202008–51 I.R.B.

return for the year in which such failure
was discovered (or for a service provider
who is relying on the relief provided in
§VIIIofthisnotice,the service provider’s
timely-filed (including extensions) origi-
nal federal income tax return for 2009) the
informationrequiredby§IX.B.3ofthis
notice. In addition, each taxpayer relying
on the relief provided in § V, § VI, § VII or
§ VIII of this notice must make reasonable
efforts to provide notice to the examining
agent upon the commencement of an ex-
amination of such taxpayer’s federal tax
return that the taxpayer was relying upon
the relief provided under this notice for
years covered by the examination.
1. Attachment to Service Recipient Tax
Return for Failures Described in § V, § VI,
§VIIor§VIII
The service recipient must attach a
statement to its return setting out the fol-
lowing information with respect to each
failure described in § V, § VI, § VII or
§ VIII of this notice:
(a) The name and taxpayer identifica-
tion number of each service provider af-
fected by the failure. Where the same
or a substantially similar operational fail-
ure has occurred with respect to multi-
ple service providers, the information re-
quired in § IX.B.1(b) through (e) of this
notice may be supplied only once with
respect to such operational failure, pro-
vided that the identification of each service
provider affected by the operational failure
in this § IX.B.1(a) references such infor-
mation and the amount involved in the op-
erational failure with respect to such ser-
vice provider.
(b) Identification of the nonqualified
deferred compensation plan with respect to
which such failure occurred.
(c) A brief description of the failure and
the circumstances under which it occurred,
including the amount involved and date on
which the failure occurred.
(d) A brief description of the steps taken
by the service recipient to avoid a recur-
rence of the failure, including the date on
which such steps were implemented.
(e) A statement that the operational fail-
ure is eligible for the correction under the
terms of this notice, and that the service re-
cipient has taken all actions required, and
otherwise met all requirements, for such
correction.
2. Information to be Provided to Service
Provider for Failures Described in § V,
§VI,§VIIor§VIII
The service recipient must provide
the following information to each service
provider affected by a failure to comply
with § 409A who is entitled to relief under
§ V, § VI, § VII or § VIII of this notice
with respect to such failure:
(a) A statement that the service provider
is entitled to the relief provided in § V,
§ VI, § VII, or § VIII of this notice (as
applicable) with respect to a failure to
comply with § 409A and that the service
provider must attach a copy of the state-
ment to the service provider’s income tax
return for the taxable year in which the
failure was discovered.
(b) The information described in
§ IX.B.1(b) through (e) of this notice.
3. Attachment to Service Provider Tax
Return for Failures Described in § V, § VI,
§VIIor§VIII
The service provider must attach to the
service provider’s income tax return a copy
of the statement the service provider re-
ceived from the service recipient with re-
spect to each such failure.
X. EFFECT ON OTHER
DOCUMENTS
For taxable years beginning on or after
January 1, 2009, Notice 2007–100 is ob-
soleted. Taxpayers may rely on this No-
tice 2008–113 for taxable years beginning
before January 1, 2009. For service re-
cipients and serviceproviders who are en-
titled to relief under this notice, Notice
2006–100, 2006–2 C.B. 1109 (relating to
reporting and wage withholding for 2006),
and Notice 2007–89, 2007–46 I.R.B. 998
(relating to reporting and wage withhold-
ing for 2007), are modified to conform to
the provisions of this notice with respect
to (i) the amount that is required to be in-
cluded in income by a service provider un-
der section 409A(a), and (ii) the amount
that is required to be reported by the ser-
vice recipient as an amount includible in
income under section 409A(a) on Form
W–2, Box 1 and Box 12, using Code Z, or
Form 1099–MISC, Box 7 and Box 15b, as
applicable.
XI. REQUEST FOR COMMENTS
The Treasury Department and the IRS
are considering whether to extend the
ability of certain service providers to re-
pay an incorrect payment of a deferred
amount over an extended period if the
service provider would otherwise expe-
rience an immediate and heavy financial
need as defined in §1.401(k)–1(d)(3)(iii)
due to the repayment requirement to the
relief provided in § VIII, subject to the
service provider submitting an appropriate
extension of the statute of limitations on
assessment with respect to the taxable year
in which the failure occurred. Comments
are requested on all aspects of such poten-
tial relief, including whether such relief
would be utilized and how such relief
would be implemented.
The Treasury Department and the IRS
are also considering whether a program
providing relief in the case of a plan doc-
ument failure that is brought into compli-
ance with § 409A would be both feasi-
ble and advisable. To the extent such a
program is adopted, the Treasury Depart-
ment and the IRS intend that such guid-
ance not allow taxpayers who sponsor or
participate in a noncompliant plan an ad-
vantage in comparison to taxpayers who
sponsor or participate in a compliant plan,
by providing the sponsor of, or the par-
ticipants in, the noncompliant plan greater
flexibility to change the time and form of
payment of deferred amounts than would
have been available if no such plan doc-
ument failure had occurred. In addition,
the Treasury Department and the IRS in-
tend that such a program maintain strong
incentives for taxpayers to comply in full
with the requirements of § 409A.
The Treasury Department and the IRS
request comments on all aspects of such a
potential program, including how such a
program would apply to provisions gov-
erning the timing of deferral elections as
well as provisions governing the times
and forms of payments of amounts de-
ferred. The Treasury Department and the
IRS specifically request comments on the
following issues:
•What types of failures would be eli-
gible for the relief (and what types of
failures would not be eligible for the
relief)?
2008–51 I.R.B.1321December 22, 2008

•Should relief be limited to minor or
nonmaterial errors and if so how would
the materiality of a failure be deter-
mined?
•To the extent eligibility for the relief
is contingent upon whether a noncom-
pliant plan provision has been put into
effect, or whether a noncompliant plan
provision is applicable to or affects
an amount deferred, what standards
would apply to determine whether
such a noncompliant plan provision
has been put into effect or otherwise
applies to or affects an amount de-
ferred?
•What rules would govern the appro-
priate correction for the noncompliant
plan provision and how would such
rules avoid granting an impermissible
late subsequent deferral election or
election to accelerate a payment?
•How would the correction and relief
apply if the correction were made dur-
ing the service provider’s taxable year
and would there be any distinction be-
tween amounts deferred before the cor-
rection and amounts deferred in the
same year but after the correction?
•What information would service
providers and service recipients be re-
quired to file with the IRS to make use
of such correction procedure?
•What procedure would service recipi-
ents be required to implement to pre-
vent a recurrence of the same or a sub-
stantially similar plan document fail-
ure?
Comments must be submitted by March
6, 2009. All materials submitted will be
available for public inspection and copy-
ing. Comments may be submitted to In-
ternal Revenue Service, CC:PA:LPD:RU
(Notice 2008–113), Room 5203, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may also
be hand-delivered Monday through Fri-
day between the hours of 8 a.m. and
4 p.m. to the Courier’s Desk at 1111
Constitution Avenue, NW, Washington,
DC 20224, Attn: CC:PA:LPD:RU (Notice
2008–113), Room 5203. Submissions
may also be sent electronically via the
internet to the following email address:
Notice.comments@irscounsel.treas.gov.
Include the notice number (Notice
2008–113) in the subject line.
XII. PAPERWORK REDUCTION
ACT
The collection of information contained
in this notice has been reviewed and ap-
proved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 USC 3507) under con-
trol number 1545–2086.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
The collection of information in this no-
tice is in § IX. This information is required
to determine whether the taxpayers claim-
ing the relief are eligible for the relief and
that the applicable requirements for relief
are met. The likely respondents are corpo-
rations and individuals.
The estimated annual reporting and/or
recordkeeping burden is 5,000 hours.
The estimated annual burden per re-
spondent/recordkeeper is .5 hours.
The estimated number of respondents is
10,000.
The estimated annual frequency of re-
sponse is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax return and tax return
information are confidential, as required
by § 6103.
XIII. DRAFTING INFORMATION
The principal author of this notice is
Stephen Tackney of the Office of Divi-
sion Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities),
although other Treasury and IRS officials
participated in its development. For fur-
ther information on the provisions of this
notice, contact Stephen Tackney at (202)
927–9639 (not a toll-free number).
Tables for Figuring Amount
Exempt From Levy on Wages,
Salary, and Other Income
Notice 2008–114
1. Table for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income
(Forms 668-W(c), 668-W(c)(DO), 668-W(ICS)) 2009
Publication 1494, shown below, provides tables that show the amount of an individual’s income that is exempt from a notice
of levy used to collect delinquent tax in 2009.
(Amounts are for each pay period.)
December 22, 200813222008–51 I.R.B.

Filing Status: Single
Number of Exemptions Claimed on Statement
Pay Period
1234
5
6More Than 6
Daily
35.9650.00
64.0478.0892.12
106.15
21.92 plus 14.04 for
each exemption
Weekly179.81
250.00
320.19390.38
460.58530.77
109.62 plus 70.19 for
each exemption
Biweekly
359.62500.00
640.38780.77
921.151061.54
219.23 plus 140.38 for
each exemption
Semi-
monthly
389.58541.67693.75845.83
997.92
1150.00 237.50 plus 152.08 for
each exemption
Monthly779.171083.33
1387.50
1691.67
1995.83
2300.00
475.00 plus 304.17 for
each exemption
Filing Status: Unmarried Head of Household
Number of Exemptions Claimed on Statement
Pay Period
1234
5
6More Than 6
Daily
46.15
60.1974.2388.27102.31
116.35
32.12 plus 14.04 for
each exemption
Weekly230.77300.96
371.15441.35511.54581.73 160.58 plus 70.19 for
each exemption
Biweekly
461.54
601.92742.31882.691023.081163.46
321.15 plus 140.38 for
each exemption
Semi-
monthly
500.00652.08
804.17
956.25
1108.331260.42
347.92 plus 152.08 for
each exemption
Monthly1000.001304.171608.33
1912.50
2216.67
2520.83 695.83 plus 304.17 for
each exemption
Filing Status: Married Filing Joint Return (and Qualifying Widow(er)s)
Number of Exemptions Claimed on Statement
Pay Period
1234
5
6More Than 6
Daily
57.88
71.92
85.96
100.00114.04128.08
43.85 plus 14.04 for
each exemption
Weekly289.42
359.62
429.81
500.00570.19
640.38 219.23 plus 70.19 for
each exemption
Biweekly
578.85
719.23
859.62
1000.001140.381280.77 438.46 plus 140.38 for
each exemption
Semi-
monthly
627.08779.17
931.25
1083.33
1235.421387.50 475.00 plus 152.08 for
each exemption
Monthly
1254.171558.331862.50
2166.672470.83
2775.00 950.00 plus 304.17 for
each exemption
2008–51 I.R.B.1323December 22, 2008

Filing Status: MarriedFiling Separate Return
Number of Exemptions Claimed on Statement
Pay Period
1234
5
6More Than 6
Daily
35.9650.00
64.0478.0892.12
106.15
21.92 plus 14.04 for
each exemption
Weekly179.81
250.00
320.19390.38
460.58530.77
109.62 plus 70.19 for
each exemption
Biweekly
359.62500.00
640.38780.77
921.151061.54
219.23 plus 140.38 for
each exemption
Semi-
monthly
389.58541.67693.75845.83
997.92
1150.00 237.50 plus 152
.08 for
each exemption
Monthly779.171083.33
1387.50
1691.67
1995.83
2300.00
475.00 plus 304.17 for
each exemption
2. Table for Figuring Additional Exempt Amountfor Taxpayers at Least 65 Years Old and/or Blind
Additional Exempt Amount
Filing Status* DailyWeeklyBiweeklySemimonthlyMonthly
Single or Head
of Household
1
2
5.38
10.77
26.92
53.85
53.85
107.69
58.33
116.67
116.67
233.33
Any Other
Filing Status
1
2
3
4
4.23
8.46
12.69
16.92
21.15
42.31
63.46
84.62
42.31
84.62
126.92
169.23
45.83
91.67
137.50
183.33
91.67
183.33
275.00
366.67
* ADDITIONAL STANDARD DEDUCTION claimed on Parts 3, 4, & 5 of levy.
Examples
These tables show the amount exempt from a levy on wages, salary, and other income.
For example:
1. A single taxpayer who is paid weekly and claims three exemptions (including one for the taxpayer) has $320.19 exempt
from levy.
2. If the taxpayer in number 1 is over 65 and writes 1 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4, & 5
of the levy, $347.11 is exempt from this levy ($320.19 plus $26.92).
3. A taxpayer who is married, files jointly, is paid biweekly, and claims two exemptions (including one for the taxpayer) has
$719.23 exempt from levy.
4. If the taxpay
er in number 3 is over 65 and has a spouse who is blind, this taxpayer should write 2 in the ADDITIONAL
STANDARD DEDUC
TION space on Parts 3, 4, & 5 of the levy. Then, $803.85 is exempt from this levy ($719.23 plus $84.62).
December 22, 200813242008–51 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Further Guida
nce on the
Application
of Section 409A
to Nonqualif
ied Deferred
Compensati
on Plans
REG–148326
–05
AGENCY: Int
ernal Revenue Service
(IRS), Tre
asury.
ACTION: No
tice of proposed rulemaking
and notice
of public hearing.
SUMMARY: T
his document contains
proposed r
egulations on the calculation
of amounts
includible in income under
section 4
09A(a) and the additional taxes
imposed b
ysuchsectionwithrespectto
service p
roviders participating in certain
nonquali
fied deferred compensation plans.
The regul
ations would affect such ser-
vice pro
viders and the service recipients
for whom
the service providers provide
service
s. This document also provides a
notice o
f public hearing on these proposed
regulat
ions.
DATES:
Written or electronic comments
must be
received by March 9, 2009. Out-
lines o
f topics to be discussed at the public
hearin
g scheduled for April 2, 2009, must
be rece
ived by March 9, 2009.
ADDRES
SES: Send submissions to:
CC:PA
:LPD:PR(REG–148326–05),
room 5
203, Internal Revenue Service,
PO Box
7604, Ben Franklin Station,
Washi
ngton, DC 20044. Submissions may
be han
d-delivered Monday through Friday
betw
een the hours of 8 a.m. and 4 p.m.
to CC
:PA:LPD:PR (REG–148326–05),
Cour
ier’s Desk, Internal Revenue
Serv
ice, 1111 Constitution Avenue, NW,
Wash
ington, DC, or sent electronically,
via
theFederaleRulemaking
Por
tal atwww.Regulations.gov(IRS
REG
–148326–05). The public hearing
wil
l be held in the auditorium, Internal
Rev
enue Building, 1111 Constitution
Ave
nue, NW, Washington, DC.
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the proposed
regulations,
Stephen Tackney, at (202)
927–9639; con
cerning submissions of
comments, the
hearing, and/or to be placed
on the buildi
ng access list to attend the
hearing, Fun
mi Taylor at (202) 622–7190
(not toll-fr
ee numbers).
SUPPLEMENTA
RY INFORMATION:
Background
Section 409A
was added to the Internal
Revenue Cod
e (Code) by section 885 of
the America
n Jobs Creation Act of 2004,
Public Law 1
08–357 (118 Stat. 1418).
Section 409
A generally provides that if
certain req
uirements are not met at any
time durin
g a taxable year, amounts de-
ferred und
er a nonqualified deferred com-
pensation
plan for that year and all previ-
ous taxabl
e years are currently includible
in gross in
come to the extent not subject
to a subst
antial risk of forfeiture and not
previous
ly included in gross income. Sec-
tion 409A
also includes rules applicable to
certain t
rusts or similar arrangements asso-
ciated w
ith nonqualified deferred compen-
sation.
On Decem
ber 20, 2004, the IRS is-
sued Not
ice 2005–1, 2005–1 C.B. 274,
setting
forth initial guidance on the ap-
plicati
on of section 409A, and providing
transit
ion guidance in accordance with the
terms o
f the statute. On April 10, 2007,
the Tre
asury Department and the IRS is-
sued fi
nal regulations under section 409A.
(T.D. 9
321, 2007–19 I.R.B. 1123 [72 FR
19234]
, April 17, 2007). The final regu-
latio
ns are applicable for taxable years be-
ginni
ng after December 31, 2008. See No-
tice 2
007–86, 2007–46 I.R.B. 990. No-
tice 2
005–1 and the final regulations do not
addre
ss the calculation of the amount in-
cludi
ble in income under section 409A if a
plan
fails to meet the requirements of sec-
tion
409A and the calculation of the addi-
tion
al taxes applicable to such income. On
Nove
mber 30, 2006, the Treasury Depart-
ment
and the IRS issued Notice 2006–100,
200
6–2 C.B. 1109, providing interim guid-
anc
e for taxable years beginning in 2005
and
2006 on the calculation of the amount
inc
ludible in income if the requirements of
sec
tion 409A were not met, and request-
ing comments o
n these issues for use in
formulating f
uture guidance. On October
23, 2007, the T
reasury Department and
the IRS issued
Notice 2007–89, 2007–46
I.R.B. 998, pr
oviding similar interim guid-
ance for taxa
ble years beginning in 2007.
See §601.601
(d)(2)(ii)(b).
Commentator
s submitted a number of
comments add
ressing the topics covered
by these prop
osed regulations in response
to Notice 200
5–1, Notice 2006–100, No-
tice 2007–8
9, and the regulations, all of
which were c
onsidered by the Treasury
Department
and the IRS in formulating
these propo
sed regulations.
Explanatio
nofProvisions
I.Scope of P
roposed Regulations
These prop
osed regulations address the
calculati
on of amounts includible in in-
come under
section 409A(a), and related
issues inc
luding the calculation of the ad-
ditional t
axes applicable to such income.
Section 40
9A(a) generally provides that
amounts d
eferred under a nonqualified
deferred
compensation plan in all years
are inclu
dible in income unless certain
requirem
ents are met. The requirements
under se
ction 409A(a) generally relate to
the time
and form of payment of amounts
deferre
d under the plan, including the
establi
shment of the time and form of pay-
ment thr
ough initial deferral elections and
restri
ctions on the ability to change the
time an
d form of payment through subse-
quent d
eferral electionsor the acceleration
of paym
ent schedules. As provided in
the reg
ulations previously issued under
secti
on 409A, a nonqualified deferred
compe
nsation plan must comply with the
requi
rements of section 409A(a) both in
form a
nd in operation.
Taxpa
yers may also be required to in-
clude
amounts in income under section
409A(
b). Section 409A(b) generally ap-
plie
s to a transfer of assets to a trust or
simi
lar arrangement, or to a restriction of
asse
ts, for purposes of paying nonquali-
fied
deferred compensation, if such trust
or as
sets are located outside the United
Stat
es, if such assets are transferred dur-
ing
a restricted period with respect to a sin-
gle
-employer defined benefit plan spon-
sor
ed by the service recipient, or if such
2008–51 I.R.B.1325December 22, 2008

assets are restricted to the provision of ben-
efits under a nonqualified deferred com-
pensationplaninconnectionwithachange
in the service recipient’s financial health.
These proposed regulations do not address
the application of section 409A(b), includ-
ing the calculation of amounts includible
in income if the requirements of section
409A(b) are not met. For guidance on
the calculation of such amounts for taxable
years beginning on or before January 1,
2007, including the application of the Fed-
eral income tax withholding requirements,
see Notice 2007–89. The Treasury Depart-
ment and the IRS anticipate issuing further
interim guidance for later taxable years on
the calculation of the amount includible in
income under section 409A(b) and the ap-
plication of the Federal income tax with-
holding requirements to such an amount.
II.Effect of a Failure to Comply with
Section 409A(a) on Amounts Deferred in
Subsequent Years
Commentators asked how section
409A(a) applies if a plan fails to comply
with section 409A(a) during a taxable
year and the service provider continues to
have amounts deferred under the plan in
subsequent years during which the plan
otherwise complies with section 409A(a)
both in form and in operation. The statu-
tory language may be construed to provide
that a failure is treated as continuing dur-
ing taxable years beyond the year in which
the initial failure occurred, if the failure
continues to affect amounts deferred un-
der the plan. For example, if an amount
has been improperly deferred under the
plan, the statutory language could be con-
strued to provide that the plan fails to
comply with section 409A(a) during all
taxable years during which the improp-
erly deferred amounts remain deferred.
However, this position could cause harsh
results and would add administrative com-
plexity. For example, a service provider
could be required to include in income,
and pay additional taxes on, amounts de-
ferred over a number of taxable years even
if the sole failure to comply with section
409A(a) occurred many years earlier. In
addition, even if there were no failure in
the current year, to determine a taxpayer’s
liability for income taxes with respect to
nonqualified deferred compensation for a
particular year, the taxpayer and the IRS
would need to examine the plan’s form
and operation for every year in which the
service provider had an amount deferred
under the plan to determine if there was
a failure to comply with section 409A(a)
during any of those years.
For these reasons, the proposed reg-
ulations do not adopt this interpretation
and instead generally would apply the ad-
verse tax consequences that result from
a failure to comply with section 409A(a)
only with respect to amounts deferred un-
der a plan in the year in which such non-
compliance occurs and all previous tax-
able years, to the extent such amounts are
not subject to a substantial risk of for-
feiture and have not previously been in-
cluded in income. Therefore, under the
proposed regulations, a failure to meet the
requirements of section 409A(a) during a
service provider’s taxable year generally
would not affect the taxation of amounts
deferred under the plan for a subsequent
taxable year during which the plan com-
plies with section 409A(a) in form and in
operation with respect to all amounts de-
ferred under the plan. This would apply
even though the amount deferred under the
plan as of the end of such subsequent tax-
able year includes amounts deferred in ear-
lier years during which the plan failed to
comply with section 409A(a) (including,
for example, amounts deferred pursuant to
an untimely deferral election in the ear-
lier year), as long as there was no fail-
ure under the plan in a later year. Be-
cause there would be no continuing or per-
manent failure with respect to a plan that
fails to comply with section 409A(a) dur-
ing an earlier year, each taxable year would
be analyzed independently to determine if
there was a failure. As a result, assess-
ment of tax liabilities due to a plan’s failure
to comply with the requirements of sec-
tion 409A(a) in a closed year would be
time-barred. But, if a service provider fails
to properly include amounts in income un-
der section 409A(a) for a taxable year dur-
ing which there was a failure to comply
with section 409A(a), and assessment of
taxes with respect to such year becomes
barred by the statute of limitations, then
the taxpayer’s duty of consistency would
prevent the service provider from claim-
ing a tax benefit in a later year with respect
to such amount (such as, for example, by
claiming any type of “basis” or “invest-
ment in the contract” in the year the service
recipient paid such amount to the service
provider pursuant to the plan’s terms).
Under the general rule in the proposed
regulations, if all of a taxpayer’s deferred
amounts under a plan are nonvested and
the taxpayer makes an impermissible de-
ferral election or accelerates the time of
payment with respect to some or all of
the nonvested deferred amount, the non-
vested deferred amount generally would
not be includible in income under section
409A(a) in the year of the impermissi-
ble change in time and form of payment
(although if there were vested amounts
deferred under the plan, such amounts
would be includible in income under sec-
tion 409A(a)). In the subsequent taxable
year in which the service provider be-
comes vested in the deferred amount, the
plan might comply with section 409A(a)
in form and in operation, so that under the
general rule no income inclusion would be
required and no additional taxes would be
due for that year as a result of the late de-
ferral election or acceleration of payment.
In proposing to adopt this interpretation
of the statute, the Treasury Department
and the IRS do not intend to create an
opportunity for taxpayers who ignore the
requirements of section 409A(a) with re-
spect to nonvested amounts to avoid the
payment of taxes that would otherwise be
due as a result of such a failure to comply.
To ensure that this rule does not become
a means for taxpayers to disregard the
requirements of the statute, the proposed
regulations would disregard a substantial
risk of forfeiture for purposes of determin-
ing the amount includible in income under
section 409A
1
with respect to certain non-
vested deferred amounts, if the facts and
circumstances indicate that the service
recipient has a pattern or practice of per-
mitting such impermissible changes in the
time and form of payment with respect to
nonvested deferred amounts (regardless of
whether such changes also apply to vested
deferred amounts). If such a pattern or
practice exists, an amount deferred under
a plan that is otherwise subject to a sub-
stantial risk of forfeiture is not treated as
subject to a substantial risk of forfeiture
1
Under section 409A(e)(5), the Treasury Department and the IRS have the authority to disregard a substantial risk of forfeiture where necessary to carry out the purposes of section 409A.
December 22, 200813262008–51 I.R.B.

if an impermissible change in the time
and form of payment (including an imper-
missible initial deferral election) applies
to the amount deferred or if the facts and
circumstances indicate that the amount
deferred would be affected by such pattern
or practice.
III.Calculation of the Amount Deferred
under a Plan for the Taxable Year in which
the Plan Fails to Meet the Requirements
of Section 409A(a) and all Preceding
Taxable Years
A.In general
Section 409A(a)(1)(A) generally pro-
vides that if at any time during a taxable
year a nonqualified deferred compensa-
tion plan fails to meet the requirements
of section 409A(a)(2) (payments), section
409A(a)(3) (the acceleration of payments),
or section 409A(a)(4) (deferral elections),
or is not operated in accordance with such
requirements, all compensation deferred
under the plan for the taxable year and
all preceding taxable years is includible in
gross income for the taxable year to the
extent not subject to a substantial risk of
forfeiture and not previously included in
gross income. Accordingly, to calculate
the amount includible in income upon a
failure to meet the requirements of sec-
tion 409A(a), the first step is to determine
the total amount deferred under the plan
for the service provider’s taxable year and
all preceding taxable years. The second
step is to calculate the portion of the to-
tal amount deferred for the taxable year,
if any, that is either subject to a substan-
tial risk of forfeiture (nonvested) or has
been included in income in a previous tax-
able year. The last step is to subtract the
amount determined in step two from the
amount determined in step one. The ex-
cess of the amount determined in step one
over the amount determined in step two
is the amount includible in income and
subject to additional income taxes for the
year as a result of the plan’s failure to
comply with section 409A(a). Sections
III.B through III.D of this preamble ex-
plain how the proposed regulations would
address the first step in the process of de-
termining the amount includible in income
under section 409A, calculating the total
amount deferred for the taxable year.
B.Total amount deferred
1. In General
In general, under the proposed regula-
tions, the amount deferred under a plan
2
for a taxable year and all preceding tax-
able years would be referred to as the to-
tal amount deferred for a taxable year and
would be determined as of the last day of
the taxable year. Therefore, for calendar
year taxpayers, such as most individuals,
the relevant calculation date would be De-
cember 31. Determining the total amount
deferred for the taxable year as of the last
day of the taxable year during which a
plan fails to comply with section 409A(a)
would allow taxpayers to avoid the admin-
istrative burden of tracking amounts de-
ferred under a plan on a daily basis, be-
cause adjustments would not be made to
reflect notional earnings or losses or other
fluctuations in the amount payable under
the plan as they occur during the taxable
year, but would be applied only on a net ba-
sis as of the last day of the taxable year. For
example, if a service provider has a cal-
endar year taxable year, and if the service
provider’s account balance under a plan is
$105,000 as of July 1, but is only $100,000
as of December 31 of the same year, due
solely to deemed investment losses (with
no payments made under the plan during
the year), the total amount deferred un-
der the plan for that taxable year would be
$100,000.
Similarly, the total amount deferred for
a taxable year would not necessarily be the
greatest total amount deferred for any pre-
vious year, even if no amount has been
paid under the plan. For example, if a ser-
vice provider has a calendar year taxable
year, and if the service provider’s account
balance under a plan as of December 31,
2010 is $105,000, as of December 31, 2011
is $100,000, and as of December 31, 2012
is $95,000, and if those decreases are due
solely to deemed investment losses (and
no payments were made under the plan in
2011 or 2012), then the total amount de-
ferred for 2011 would be $100,000 and the
total amount deferred for 2012 would be
$95,000.
2. Treatment of Payments
If a service recipient pays an amount de-
ferred under a plan during a taxable year,
the amount remaining to be paid to (or on
behalf of) the service provider under the
plan as of the last day of the taxable year
will have been reduced as a result of such
payment. To reasonably reflect the effect
of payments made during a taxable year,
the proposed regulations provide that the
sum of all payments of amounts deferred
under a plan during a taxable year, includ-
ing all payments that are substitutes for an
amount deferred, would be added to the
amounts deferred outstanding as of the last
day of the taxable year (determined in ac-
cordance with the regulations) to calculate
the total amount deferred for such taxable
year. To lower the administrative burden
of the calculation, the proposed regulations
provide that the addition of such payments
to the total amount deferred for the taxable
year would not be increased by any inter-
est or other amount to reflect the time value
of money. The total amount deferred for a
taxable year would include all payments,
regardless of whether the service recipient
made some or all of the payments in ac-
cordance with the requirements of section
409A(a). For example, if during a taxable
year an employee receives a single sum
payment of the entire amount deferred un-
der a plan, the employee would have a total
amount deferred under the plan for the tax-
able year equal to the amount paid.
3. Treatment of Deemed Losses
Because the total amount deferred
would be determined as of the last day of
the taxable year, losses that occur during
a taxable year (due to losses on deemed
investments, actuarial losses, and other
similar reductions in the amount payable
under a plan) generally would be netted
with any gains that occur during the same
taxable year (due to deemed investment
or actuarial gains, additional deferrals,
or other additions to the amount payable
under the plan). To that extent, deemed in-
vestment losses, actuarial losses, or other
similar reductions could offset deemed
investment or actuarial gains, additional
deferrals, or other increases in the amount
deferred under the plan for purposes of de-
termining the total amount deferred for the
2
For this purpose, the term plan refers to a plan as defined under §1.409A–1(c), including any applicable plan aggregation rules.
2008–51 I.R.B.1327December 22, 2008

taxable year. This would apply regardless
of whether a deemed loss occurs before
or after the date of any specific failure to
comply with section 409A(a). For exam-
ple, assume a service provider begins a
taxable year with a $10,000 balance un-
der an account balance plan. During the
year, the service provider has an additional
deferral to the plan of $5,000 and incurs
net deemed investment losses of $2,000.
No payments are made pursuant to the
plan during the year, the employee has
no vested legally binding right to further
deferrals to the plan, and there are no other
changes to the account balance. The to-
tal amount deferred for the taxable year
would equal the $13,000 account balance
($10,000 + $5,000 - $2,000) as of the last
day of the taxable year.
4. Treatment of Rights to Deemed
Earnings on Amounts Deferred
Under section 409A(d)(5), income
(whether actual or notional) attributable
to deferred compensation constitutes de-
ferred compensation for purposes of sec-
tion 409A. See §1.409A–1(b)(2). For
example, if a service provider must include
a deferred amount in income because an
account balance plan in which the ser-
vice provider participates fails to satisfy
the requirements of section 409A(a), no-
tional earnings credited with respect to
such amount constitute deferred compen-
sation and are subject to section 409A.
If the plan also fails to comply with the
requirements of section 409A(a) during
a subsequent taxable year, the notional
earnings must be included in income and
are subject to the additional taxes under
section 409A(a), notwithstanding that the
“principal” amount of deferred compensa-
tion has already been included in income
under section 409A(a) for a previous year.
In this respect, the treatment of earnings
on nonqualified deferred compensation for
purposes of section 409A is significantly
different from the treatment of such earn-
ings for purposes of section 3121(v)(2)
(application of Federal Insurance Contri-
butions Act (FICA) tax to nonqualified
deferred compensation). As a result, no-
tional earnings ordinarily are deferred
compensation that is subject to section
409A even if such earnings would not con-
stitute wages for purposes of the FICA tax
when paid to the service provider because
of the special timing rule under section
3121(v)(2) and §31.3121(v)(2)–1(a)(2).
Accordingly, the proposed regulations
provide that earnings that are credited with
respect to deferred compensation during
a taxable year or that were credited in
previous taxable years, and earnings with
respect to deferred compensation that are
paid during such taxable year, must be
included in determining the total amount
deferred for the taxable year.
5. Total Amount Deferred for a Taxable
Year Relates to the Entire Taxable Year,
Regardless of Date or Period of Failure
Section 409A(a)(1)(A)(i) states that
if at any time during a taxable year a
nonqualified deferred compensation plan
fails to meet the requirements of section
409A(a), all compensation deferred under
the plan for the taxable year and all pre-
ceding years shall be includible in gross
income for the taxable year to the extent
not subject to a substantial risk of forfei-
ture (vested) and not previously included
in gross income. The statutory reference to
the deferred compensation required to be
included in income under section 409A(a)
does not distinguish between amounts de-
ferred in a taxable year before a failure to
meet the requirements of section 409A(a),
and amounts deferred in the same taxable
year after such failure. Accordingly, under
the proposed regulations the total amount
deferred under a plan for a taxable year
would refer to the total amount deferred
as of the last day of the taxable year, re-
gardless of the date upon which a failure
occurs. For example, if a plan is amended
during a service provider’s taxable year
to add a provision that fails to meet the
requirements of section 409A(a), the total
amount deferred as of the last day of the
taxable year would be includible in in-
come under section 409A(a). This would
include all payments under the plan dur-
ing the taxable year, including payments
made before the amendment (regardless
of whether such payments are made in
accordance with the requirements of sec-
tion 409A(a)). Similarly, if the plan in
operation fails to meet the requirements of
section 409A(a) during the taxable year,
the total amount deferred for the taxable
year would include all payments under
the plan during the taxable year, including
payments made before and after the date
the failure occurred.
The proposed regulations provide that
amounts deferred under a plan during a
taxable year in which a failure occurs
must be included in income under sec-
tion 409A(a) even if such deferrals occur
after the failure and are otherwise made
in compliance with section 409A(a). For
example, salary deferrals for periods dur-
ing a taxable year after an impermissible
accelerated payment under the same plan
during the same taxable year would be
required to be included in the total amount
deferred for the taxable year and included
in income under section 409A(a), regard-
less of whether the salary deferrals are
made in accordance with an otherwise
compliant deferral election.
6. Treatment of Short-Term Deferrals
Under §1.409A–1(b)(4), an arrange-
ment may not provide for deferred com-
pensation if the amount is payable, and
is paid, during a limited period of time
following the later of the date the service
provider obtains a legally binding right
tothepaymentorthedatesuchrightis
no longer subject to a substantial risk of
forfeiture (generally referred to as the ap-
plicable 2
1
/2month period). Whether an
amount will be treated as a short-term de-
ferral or as deferred compensation may not
be determinable as of the last day of the
service provider’s taxable year, because
it may depend upon whether the amount
is paid on or before the end of the appli-
cable 2
1
/2month period. For purposes of
calculating the totalamount deferred for
a taxable year, the proposed regulations
provide that the right to a payment that,
under the terms of the arrangement and
the facts and circumstances as of the last
day of the taxable year, may or may not
be a short-term deferral, is not included
in the total amount deferred. In addition,
even if such amount is not paid by the end
of the applicable 2
1
/2monthperiodsothat
the amount would be deferred compensa-
tion, the amount would not be includible
in the total amount deferred until the ser-
vice provider’s taxable year in which the
applicable 2
1
/2month period expired. For
example, assume that as of December 31,
2010, an employee whose taxable year
is the calendar year is entitled to an an-
nual bonus that is scheduled to be paid on
December 22, 200813282008–51 I.R.B.

March 15, 2011, and that the bonus would
qualify as a short-term deferral if paid on
or before the end of the applicable 2
1
/2
month period, which ends on March 15,
2011. The bonus would not be included in
the total amount deferred for 2010. This
would be true regardless of whether the
bonus is paid on or before March 15, 2011.
However, the bonus would be includible
in the total amount deferred for 2011 if the
bonus is not paid on or before March 15,
2011.
C.Calculation of total amount
deferred — general principles
1. General Rule
Generally, the proposed regulations
provide that the total amount deferred un-
der a plan for a taxable year is the present
value as of the close of the last day of
a service provider’s taxable year of all
amounts payable to the service provider
under the plan, plus amounts paid to the
service provider during the taxable year.
For this purpose, present value generally
would mean the value as of the close
of the last day of the service provider’s
relevant taxable year of the amount or
series of amounts due thereafter, where
each such amount is multiplied by the
probability that the condition or condi-
tions on which payment of the amount is
contingent would be satisfied (subject to
special treatment for certain contingen-
cies), discounted according to an assumed
rate of interest to reflect the time value
of money. A discount for the probability
that the service provider will die before
commencement of payments under the
plan would be permitted to the extent that
the payments would be forfeited upon the
service provider’s death. The proposed
regulations provide that the present value
cannot be discounted for the probability
that payments will not be made (or will be
reduced) because of the unfunded status
of the plan, the risk associated with any
deemed investment of amounts deferred
under the plan, the risk that the service re-
cipient or another party will be unwilling
or unable to pay amounts deferred under
the plan when due, the possibility of fu-
ture plan amendments, the possibility of a
future change in the law, or similar risks
or contingencies. The proposed regula-
tions further provide that restrictions on
paymentthatwillormaylapsewiththe
passage of time, such as a temporary risk
of forfeiture that is not a substantial risk
of forfeiture, are not taken into account
in determining present value. However,
any potential additional deferrals contin-
gent upon abona fiderequirement that
the service provider perform services after
the taxable year, such as potential salary
deferrals, service credits or additions due
to increases in compensation, would not
be taken into account in determining the
total amount deferred for the taxable year.
For purposes of calculating the present
value of the benefit, the proposed regula-
tions require the use of reasonable actu-
arial assumptions and methods. Whether
assumptions and methods are reasonable
for this purpose would be determined as of
each date the benefit is valued for purposes
of determining the total amount deferred.
The proposed regulations also pro-
vide certain rules relating to the crediting
of earnings, generally providing that the
schedule for crediting earnings will be re-
spected if the earnings are credited at least
once a year. In general, if the rules with
respect to the crediting of earnings are
met, any additional earnings that would
be credited after the end of the taxable
year only if the service provider continued
performing services after the end of the
year would not be includible in the total
amount deferred for the year. If the right
to earnings is based on an unreasonably
high interest rate, the proposed regulations
generally would characterize the unrea-
sonable portion of earnings as a current
right to additional deferred compensation.
In addition, if earnings are based on a rate
of return that does not qualify as a prede-
termined actual investment or a reasonable
interest rate, the proposed regulations pro-
vide that the general calculation rules as
applied to formula amounts would apply.
The proposed regulations provide other
general rules that address issues such as
plan terms under which amounts may be
payable when a triggering event occurs,
rather than on a fixed date, or plan terms
under which the amount payable is de-
termined in accordance with a formula,
rather than being set at a fixed amount.
In addition, the proposed regulations pro-
vide specific rules under which the total
amounts deferred under certain types of
nonqualified deferred compensation plans
would be determined. The rules applica-
ble to specific types of plans would ap-
ply in conjunction with the general rules.
As a result, under the proposed regula-
tions, an amount of deferred compensation
may be includible in income under section
409A(a) even if the same amount would
not yet be includible in wages under sec-
tion 3121(v)(2).
2. Rules Regarding Alternative Times and
Forms of Payment
To calculate the total amount deferred
under a nonqualified deferred compen-
sation plan, it is necessary to determine
the time and form of payment pursuant
to which the amount will be paid. Under
the proposed regulations, if an amount
deferred under a plan could be payable
pursuant to more than one time and form
of payment under the plan, the amount
would be treated as payable in the avail-
able time and form of payment that has the
highest present value. For this purpose, a
time and form of payment generally would
be an available time and form of payment
to the extent a deferred amount under the
plan could be payable pursuant to such
time and form of payment under the plan’s
terms, provided that if there is abona fide
requirement that the service provider con-
tinue to perform services after the end of
the taxable year to be eligible for the time
and form of payment, the time and form of
payment would not be treated as available.
If an alternative time and form of payment
is available only at the service recipient’s
discretion, the time and form of payment
would not be treated as available unless the
service provider has a legally binding right
under the principles of §1.409A–1(b)(1) to
any additional value that would be gener-
ated by the service recipient’s exercise of
such discretion. If a service provider has
begun receiving payments of an amount
deferred under a plan and neither the ser-
vice provider nor the service recipient can
change the time and form of payment of
such deferred amount without the other
party’s approval, then no other time and
form of payment under the plan would
be treated as available if such approval
requirement has substantive significance.
In certain instances, a service provider
will be eligible for an alternative time
and form of payment only if the ser-
vice provider has a certain status as of
a future date. For example, a time and
2008–51 I.R.B.1329December 22, 2008

form of payment may be available only
if the service provider is married at the
time the payment commences. The pro-
posed regulations generally provide that
for purposes of determining whether the
service provider will meet the eligibility
requirements so that an alternative time
and form of payment is available, the ser-
vice provider is assumed to continue in
the service provider’s status as of the last
day of the taxable year. However, if the
eligibility requirement is notbona fide
and does not serve abona fidebusiness
purpose, the eligibility requirement would
be disregarded and the service provider
would be treated as eligible for the al-
ternative time and form of payment. For
this purpose, an eligibility condition based
upon the service provider’s marital status,
parental status, or status as a U.S. citizen
or lawful permanent resident would be
presumed to bebona fideandtoservea
bona fidebusiness purpose.
If the calculation of the present value of
the amount payable to a service provider
under a plan requires assumptions relating
to the timing of the payment because the
payment date is, or could be, a triggering
event rather than a specified date, the pro-
posed regulations specify certain assump-
tions that must be applied to make such
calculation. First, the possibility that a par-
ticular payment trigger would occur gener-
ally would not be taken into account if the
right to the payment would be subject to
a substantial risk of forfeiture if that pay-
ment trigger were the only specified pay-
ment trigger. For example, if an amount
is payable upon the earlier of the attain-
ment of a specified age or an involuntary
separation from service (as defined in the
§1.409A–1(n)), the present value of the
amount payable upon involuntary separa-
tion from service would not be taken into
account if the payment would be subject
to a substantial risk of forfeiture if that
were the only payment trigger. However,
if multiple triggers with respect to the same
payment would, applied individually, con-
stitute substantial risks of forfeiture, such
triggers would not be disregarded under
this rule unless all such triggers, applied in
the aggregate, would also constitute a sub-
stantial risk of forfeiture. Second, the pos-
sibility that an unforeseeable emergency,
as defined in §1.409A–3(i)(3), would oc-
cur and result in a payment also would not
be taken into account for purposes of cal-
culating the amount deferred.
If an amount is payable upon a service
provider’s death, it generally would not
be necessary to make assumptions con-
cerning when the service provider would
die because any additional value due to
the amount becoming payable upon the
service provider’s death generally would
be treated as an amount payable under a
death benefit plan, and amounts payable
under a death benefit plan are not deferred
compensation for purposes of section
409A(a). Similarly, such assumptions
generally would not be necessary for an
amount payable upon a service provider’s
disability, because any additional value
due to the amount becoming payable upon
the service provider’s disability gener-
ally would be payable under a disability
plan, and amounts payable under a dis-
ability plan are not deferred compensa-
tion for purposes of section 409A. See
§1.409A–1(a)(5).
In other cases where it is necessary to
make assumptions concerning when a pay-
ment trigger would occur to determine the
amount deferred under a plan, taxpayers
generally would be required to assume that
the payment trigger would occur at the
earliest possible time that the conditions
under which the amount would become
payable reasonably could occur, based on
the facts and circumstances as of the last
day of the taxable year. However, the pro-
posed regulations provide a special rule
for amounts payable due to the service
provider’s separation from service, termi-
nation of employment, or other event re-
quiring the service provider’s reduction or
cessation of services for the service recip-
ient. In such a case, the total amount de-
ferred would be calculated as if the service
provider had met the required reduction or
cessation of services as of the close of the
last day of the service provider’s taxable
year for which such calculation was being
made. These rules would apply regardless
of whether the payment trigger has or has
not occurred as of any future date upon
which the amount deferred for a prior tax-
able year was being determined.
The Treasury Department and the IRS
recognize that for some service providers,
the earliest possible time that a payment
trigger reasonably could occur will not be
the most likely time the trigger will oc-
cur. Similarly, the Treasury Department
and the IRS recognize that for many ser-
vice providers, the assumption that the ser-
vice provider ceases providing services as
of the end of the taxable year may not be
realistic. The Treasury Department and the
IRS request comments on alternative stan-
dards that could be utilized for these pay-
ment triggers.
An alternative approach might presume
a date upon which the service provider
will separate from service such as, for
example, 100 months after the last day
of the service provider’s taxable year for
which the amount deferred is being cal-
culated. Cf. §1.280G–1 Q&A 24(c)(4).
Such a standard, however, would not
reflect the value of additional deferred
compensation that would be paid only if
the service provider separates from service
before the end of the 100-month period,
such as an early retirement subsidy or
a window benefit, unless special rules
were developed to address such situations.
Another issue that arises is whether such
a standard should apply if the service
provider is likely to retire during the next
100 months, such as if a service provider
has attained a certain age, number of
years of service, or level of financial
independence. However, the Treasury
Department and the IRS are concerned
whether an approach involving the
application of individualized standards to
determine the probability that a particular
service provider will separate from service
will be administrable in practice.
3. Treatment of Rights to Formula
Amounts
Once the date that a payment will oc-
cur has been fixed (either as a specified
date under the plan’s terms or through
application of the rules in the proposed
regulations), it is necessary to quantify
the amount of the payment to which the
service provider will be entitled to cal-
culate the total amount deferred under a
nonqualified deferred compensation plan.
However, certain plans may define the
amount payable by a formula or other
method that is based on factors that may
vary in future years. In general, if, at the
end of the service provider’s taxable year,
the amount to be paid in a future year is a
formula amount, the proposed regulations
provide that the amount payable in the
future year for purposes of calculating the
December 22, 200813302008–51 I.R.B.

total amount deferred must be determined
using reasonable assumptions.
A deferred amount generally would be
a formula amount subject to the reason-
able assumptions standard if calculating
the payment amount is dependent upon
factors that are not determinable after tak-
ing into consideration all of the assump-
tions and other calculation rules provided
in the proposed regulations. For example,
a future payment equal to one percent of
a corporation’s net profits over five cal-
endar years generally would be a formula
amount until the last day of the fifth year,
because the corporation’s net profits over
the five calendar years could not be de-
termined by applying the assumptions and
rules set out in the proposed regulations
until the end of the fifth calendar year.
A deferred amount would not be a for-
mula amount at the end of the taxable
year merely because the information nec-
essary to determine the amount is not read-
ily available, if such information exists at
the end of such taxable year. For example,
if a deferred amount is based upon the ser-
vice recipient’s profits for its taxable year
that coincides with the service provider’s
taxable year, the amount would be consid-
ered a non-formula amount at the end of
the taxable year because the information
necessary to determine the service recipi-
ent’s profits exists, although such informa-
tion may not be immediately accessible.
The right to have a deferred amount
credited with reasonable earnings that may
vary, for example because the earnings are
based on the value of a deemed invest-
ment, would not affect whether the right
to the underlying deferred amount is a for-
mula amount. In addition, the amount of
earnings to which the service provider has
become entitled at the end of a particu-
lar taxable year would not be treated as
a formula amount, regardless of whether
such earnings could subsequently be re-
duced by future losses. For example, as-
sume a service provider has a $10,000 ac-
count under an account balance plan, to be
paid out in three years subject to earnings
based on a mutual fund designed to repli-
cate the performance of the S&P 500 in-
dex. At the end of Year 1, the account
balance is $10,500. For Year 1, the ser-
vice provider would have a total amount
deferred equal to $10,500, notwithstand-
ing that the amount could be reduced by
future losses based on losses in the mutual
fund.
D.Calculation of total amounts
deferred — specific types of plans
1. Account Balance Plans
Under the proposed regulations, the
amount deferred under an account balance
plan for a taxable year generally equals the
aggregate balance of all accounts under
the plan as of the close of the last day of
the taxable year, plus any amounts paid
from such plan during the taxable year,
so long as the aggregate account balance
is determined using not more than a rea-
sonable interest rate or the return on a
predetermined actual investment. This
rule would apply regardless of whether the
applicable interest rate used to determine
the earnings was higher or lower than
the applicable Federal rate (AFR) under
section 1274(d), provided that the interest
rate was no more than a reasonable rate of
interest. For a description of the proposed
rules on how to calculate the total amount
deferred if the right to earnings is based
on an unreasonably high interest rate, see
section III.C.1 of this preamble.
2. Nonaccount Balance Plans
Under the proposed regulations, the to-
tal amount deferred for a taxable year un-
der a nonaccount balance plan generally
is calculated under the general calculation
rule. See section III.C of this preamble.
For example, if a service provider has the
right to be paid on a specified future date a
fixed amount that is not credited with earn-
ings, the total amount deferred for a year
generally would be the present value as of
the last day of the service provider’s tax-
able year of the amount to which the ser-
vice provider has a right to be paid in the
future year (assuming no payments were
made under the plan during the year). In-
creases in the present value of the payment
in subsequent years due to the passage of
time would be treated as earnings in the
years in which such increases occur. For
example, a right to a payment of $10,000 in
Year 3 may have a present value in Year 1
equal to $8,900, and a present value in Year
2 equal to $9,434, so that the total amount
deferred in Year 1 would be $8,900, the
total amount deferred in Year 2 would be
$9,434, and the total amount deferred in
Year 3 would be $10,000 (assuming no
payments were made during any year ex-
cept Year 3). Any potential additional ser-
vice credits or increases in compensation
after the end of the taxable year for which
the calculation is being made would not be
taken into account in determining the total
amount deferred for the taxable year.
3. Stock Rights
In general, the proposed regulations
provide that the total amount deferred
under an outstanding stock right is the
amount of money and the fair market
value of the property that the service
provider would receive by exercising the
right on the last day of the taxable year,
reduced by the amount (if any) the service
provider must pay to exercise the right
and any amount the service provider paid
for the right, which is commonly referred
to as the spread. Accordingly, for an out-
standing stock option, the total amount
deferred generally would equal the un-
derlying stock’s fair market value on the
last day of the taxable year, less the sum
of the exercise price and any amount paid
for the stock option. For an outstanding
stock appreciation right, the total amount
deferred generally would equal the under-
lying stock’s fair market value on the last
day of the taxable year, less the sum of the
exercise price and any amount paid for the
stock appreciation right. For this purpose,
thestock’sfairmarketvaluewouldbede-
termined applying the principles set forth
in §1.409A–1(b)(5).
The Treasury Department and the IRS
recognize that the spread generally is less
than the fair market value of the stock
right, which is used for purposes of de-
termining the amount taxable under other
Code provisions such as section 83 (if a
stock option has a readily ascertainable fair
market value), section 4999, and section
457(f). However, because these types of
stock rights typically will fail to comply
with section 409A(a) in multiple years, a
taxpayer who holds such a stock right gen-
erally will be required to include amounts
in income under section 409A in more than
one taxable year. Therefore, the Treasury
Department and the IRS believe that it is
more appropriate to use the spread for pur-
poses of applying section 409A(a) to stock
rights.
2008–51 I.R.B.1331December 22, 2008

4. Separation Pay Arrangements
A deferred amount that is payable only
upon an involuntary separation from ser-
vice generally will be treated as subject to
a substantial risk of forfeiture until the ser-
vice provider involuntarily separates from
service. Accordingly, under the proposed
regulations the amount of deferred com-
pensation generally would not be required
to be calculated until the service provider
has involuntarily separated from service.
In addition, if the amount were payable
upon either an involuntary separation from
service or some other trigger, such as a
fixed date, the possibility of payment upon
an involuntary separation from service
generally would be ignored for purposes
of determining the total amount deferred
under the arrangement. See section III.C.2
of this preamble. Once an involuntary
separation from service has occurred, the
amount deferred under the plan would
be determined using the rules that would
apply to the schedule of payments if the
right to payment were not contingent upon
an involuntary separation from service.
For example, if the amounts payable are
installment payments and the remain-
ing installment payments include interest
credited at a reasonable rate, the total
amount deferred under the plan would
be determined under the rules governing
account balance plans. If more than one
type of deferred compensation arrange-
ment were provided under the separation
pay agreement, the amount deferred under
each arrangement would be determined
using the rules applicable to that type of
arrangement. The total amount deferred
for the taxable year would be the sum of all
of the amounts deferred under the various
arrangements constituting the plan.
5. Reimbursement Arrangements
The proposed regulations provide a
method of calculating the amount deferred
under a reimbursement arrangement, in-
cluding an arrangement where the benefit
is provided as an in-kind benefit from the
service recipient or the service recipient
will pay directly the third-party provider
of the goods or services to the service
provider. For example, the amount de-
ferred under an arrangement providing
a specified number of hours of financial
planning services after a service provider’s
separation from service would be de-
termined using the rules applicable to
reimbursement arrangements, regardless
of whether the service recipient reim-
burses the service provider for the service
provider’s expenses in purchasing such
services, provides the financial planning
services directly to the service provider,
or pays a third-party financial planner to
provide such services. The rules for reim-
bursement arrangements would apply to
all such types of arrangements, including
arrangements that would not be disag-
gregated from a nonaccount balance plan
under §1.409A–1(c)(2)(i)(E) because the
amounts subject to reimbursement exceed
the applicable limits.
The proposed calculation rules provide
that if a service provider has a right to re-
imbursements but only up to a specified
maximum amount, it is presumed that the
taxpayer will incur the maximum amount
of expenses eligible for reimbursement, at
the earliest possible time such expenses
may be incurred and payable at the earli-
est possible time the amount may be reim-
bursed under the plan’s terms. The service
provider could rebut the presumption if the
service provider demonstrates by clear and
convincing evidence that it is unreason-
able to assume that the service provider
would expend (or would have expended)
the maximum amount of expenses eligi-
ble for reimbursement. For example, if
a service provider is entitled to the reim-
bursement of country club dues the service
provider incurs in the next taxable year, not
to exceed $30,000, if the service provider
can demonstrate that the most expensive
country club within reasonable geographic
proximity of the service provider’s resi-
dence and work location will cost $20,000
per year, and that the service provider’s
level of compensation and financial re-
sources make it unreasonable to assume
that the service provider would travel pe-
riodically to the locales of other, more ex-
pensive country clubs, the service provider
can calculate the amount deferred based
upon the $20,000 being eligible for reim-
bursement. The presumption of maximum
utilization of expenses eligible for reim-
bursement generally would not apply if
the expenses subject to reimbursement are
medical expenses.
If a right to reimbursement is not sub-
ject to a maximum amount, the taxpayer
would be treated as having deferred a
formula amount, provided that the tax-
payer would be required to calculate the
amount based on the maximum amount
that reasonably could be expended and
reimbursed. The amount would be consid-
ered a nonformula amount as soon as the
taxpayer incurs the expense that is subject
to reimbursement, in an amount equal to
the reimbursement to which the taxpayer
is entitled. For example, a right to the
reimbursement of half of the expenses the
service provider incurs to purchase a boat
without any limitation with respect to the
cost would be treated as a deferral of a
formula amount, until such time as the
service provider purchases the boat.
6. Split-Dollar Life Insurance
Arrangements
The amount deferred under a split-dol-
lar life insurance arrangement would be
determined based upon the amount that
wouldberequiredtobeincludedinin-
come in a future year under the applicable
split-dollar life insurance rules. Determi-
nation of the amount includible in income
would depend upon the Federal tax regime
and guidance applicable to such arrange-
ment. If the split-dollar life insurance
arrangement is not subject to §1.61–22 or
§1.7872–15 due to application of the effec-
tive date provisions under §1.61–22(j), the
amount payable would be determined by
reference to Notice 2002–8, 2002–1 C.B.
398, and any other applicable guidance. If
the split-dollar life insurance arrangement
is subject to §1.61–22 or §1.7872–15,
the amount payable would be determined
by reference to such regulations, based
upon the type of arrangement. For this
purpose, the amount includible in income
generally would be determined by apply-
ing the split-dollar life insurance rules
to the arrangement in conjunction with
the general rules providing assumptions
on payment dates of deferred amounts.
However, in the case of an arrangement
subject to §1.7872–15, to the extent the
rules regarding time and form of payment
and other payment assumptions under
these proposed regulations conflict with
the provisions of §1.7872–15, the provi-
sions of §1.7872–15 would apply instead
of the conflicting rules under these pro-
posed regulations. As provided in Notice
2007–34, 2007–1 C.B. 996, the portion of
the benefit provided under the split-dollar
December 22, 200813322008–51 I.R.B.

life insurance arrangement consisting of
the cost of current life insurance protection
is not treated as deferred compensation for
this purpose. See §601.601(d)(2)(ii)(b).
7. Foreign Arrangements
Although certain foreign arrangements
are a separate category under the plan ag-
gregation rules (§1.409A–1(c)(2)(i)(G)),
the amounts deferred under such ar-
rangements would be determined using
the same rules that would apply if the
arrangements were not foreign arrange-
ments. For example, the total amount
deferred by a United States citizen partic-
ipating in a salary deferral arrangement
in France that meets the requirements of
§1.409A–1(c)(2)(i)(G), but that otherwise
would constitute an elective account bal-
ance plan under §1.409A–1(c)(2)(i)(A),
would be determined using the rules ap-
plicable to account balance plans.
8. Other Plans
The calculation of the total amount de-
ferred under a plan that does not fall into
any of the enunciated categories (and ac-
cordingly is treated as a separate plan un-
der §1.409A–1(c)(2)(i)(I)), would be de-
termined by applying the general calcula-
tion rules.
E.Calculation of amounts includible in
income
This section III.E of the preamble ad-
dresses the second step in determining the
amount includible in income under section
409A for a taxable year — the determi-
nation of the portion of the total amount
deferred for a taxable year that was either
subject to a substantial risk of forfeiture or
had previously been included in income.
That portion of the total amount deferred
for the taxable year would not be includi-
ble in income under section 409A.
1. Determination of the Portion of the
Total Amount Deferred for a Taxable Year
that is Subject to a Substantial Risk of
Forfeiture
In general, the proposed regulations
provide that the portion of the total amount
deferred for a taxable year that is subject to
a substantial risk of forfeiture (nonvested)
is determined as of the last day of the ser-
vice provider’s taxable year. Accordingly,
all amounts that vest during the taxable
year in which a failure occurs would be
treated as vested for purposes of section
409A(a), regardless of whether the vesting
event occurs before or after the failure to
meet the requirements of section 409A(a).
For example, if a plan fails to comply
with section 409A(a) due to an operational
failure on July 1 of a taxable year, and the
substantial risk of forfeiture applicable to
an amount deferred under the plan lapses
as of October 1 of the same taxable year,
that amount would be treated as a vested
amount for purposes of determining the
amount includible in income for the tax-
able year.
2. Determination of the Portion of the
Total Amount Deferred for a Taxable
Year that has been Previously Included in
Income
For a deferred amount to be treated
as previously included in income, the
proposed regulations would require that
the service provider actually and prop-
erly have included the amount in income
in accordance with a provision of the
Internal Revenue Code. This would in-
clude amounts reflected on an original or
amended return filed before expiration of
the applicable statute of limitations on as-
sessment and amounts included in income
as part of an audit or closing agreement
process. In addition, a deferred amount
would be treated as an amount previously
included in income only until the amount
is paid. Accordingly, if a deferred amount
is paid in the same taxable year in which
an amount is included in income under
section 409A, or all or a portion of an
amount previously included in income is
allocable to a payment made under the
plan (see section VI.A of this preamble),
in subsequent taxable years that amount
would not be treated as an amount previ-
ously included in income. For example, if
an employee includes $100,000 in income
under section 409A(a), and $10,000 of
the amount includible in income consists
of a payment under the plan during the
taxable year, only $90,000 would remain
to be treated as a deferred amount previ-
ously included in income. Similarly, if
in the next year the employee receives a
payment, to the extent any or all of that
$90,000 amount previously included in
income is allocated to that payment so
that all or a portion of the payment is not
includible in gross income, the amount
allocated would no longer be treated as an
amount previously included in income.
F.Treatment of failures continuing during
more than one taxable year
A plan term that fails to meet the re-
quirements of section 409A(a) may be re-
tained in the plan over multiple taxable
years. In addition, operational failures
may occur in multiple years. This section
III.F of the preamble discusses how section
409A(a) applies in such cases.
Each of the service provider’s taxable
years would be analyzed independently
to determine if amounts were includible
in income under section 409A(a). See
section II of this preamble. Thus, for
any taxable year during which a failure
occurs, all amounts deferred under the
plan would be includible in income unless
the amount has previously been included
in income or is subject to a substantial
risk of forfeiture. Generally, this means
that a service provider who includes in
income under section409A(a) all amounts
deferred under a plan for a taxable year
would not be relieved of the requirement
to include amounts in income for an earlier
taxable year in which a failure also oc-
curred. It would undermine the statutory
purpose to allow a service provider to in-
clude an amount in income under section
409A(a) (or otherwise) on a current basis
with respect to a failure that occurred in
a prior taxable year and thereby eliminate
the taxes owed for the earlier year, espe-
cially if intervening payments of deferred
amounts have reduced the total amount
deferred as of the end of such current
year. In addition, this rule generally would
prohibit a service provider from select-
ing from among several previous taxable
years the most favorable year in which to
include income. However, if an amount
was actually and properly included in in-
come under section 409A(a) in a previous
year, the amount would be treated as an
amount previously in income for purposes
of all subsequent years. Accordingly, this
rule would never make the same amount
includible in income twice under section
409A(a).
For example, assume an employee
participates in a nonqualified deferred
compensation plan and defers $10,000
2008–51 I.R.B.1333December 22, 2008

each year, credited annually with interest
at 5 percent (assumed to be reasonable for
purposes of this example), and receives no
payments under the plan. The employee’s
total amount deferred would be $10,500
for Year 1, $21,525 for Year 2, and $33,101
for Year 3. If the nonqualified deferred
compensation plan fails to meet the re-
quirements of section 409A(a) in each
year, the employee would be required to
include $10,500 in income under section
409A(a) for Year 1, $11,025 in income for
Year 2, and $11,576 in income for Year
3. If the employee includes $33,101 in
income under section 409A(a) for Year
3, the employee would not have properly
reported income for Year 1 and Year 2.
However, an amount included in income
for Year 3 would be treated as previously
included in income for purposes of any
further failures in subsequent years. In
addition, if the employee subsequently
properly includes amounts in income for
Year 1 and Year 2 on amended returns, the
employee could claim a refund of the tax
paid on the excess amounts included in
income for Year 3. Similar consequences
apply to the employer. If the employer
fails to report and withhold on amounts in-
cludible in income under section 409A(a)
in Year 1 and Year 2, the employer could
not avoid liability for the failure to with-
holdinYear1andYear2byreportingthe
full amount and withholding in Year 3.
Because each taxable year would be an-
alyzed independently, the IRS could elect
to audit and assess with respect to a single
taxable year, and require inclusion of all
amounts deferred under the plan through
that taxable year (even if failures also oc-
curred in prior taxableyears). Under those
circumstances, the taxpayer could simply
include amounts in income under section
409A(a) for that taxable year. However,
before expiration of the applicable statute
of limitations, the taxpayer could amend
returns for previous taxable years and in-
clude in income amounts required to be
included under section 409A(a), lowering
the amount includible in income under
section 409A(a) for the audited taxable
year because, for purposes of that taxable
year, those amounts would have been in-
cluded in income in previous years. For
example, an audit of Year 3 in the example
above could result in an adjustment re-
quiring $33,101 to be included in income
under section 409A(a). However, before
expiration of the applicable statute of lim-
itations, the employee could amend the
employee’s Year 1 and Year 2 Federal tax
returns to include $10,500 in income under
section 409A(a) for Year 1, and $11,025 in
income under section 409A(a) for Year 2,
and accordingly include only $11,576 in
income under section 409A(a) for Year 3.
However, the employee would be required
to pay the additional section 409A(a) taxes
for Year 1 and Year 2, including the pre-
mium interest tax. In addition, if amounts
deferred under the plan had been paid in
Year 1 or Year 2, the employee would
be required to include those additional
amounts in income under section 409A(a)
for the year paid (meaning, if the payment
had been included in income for the year
in which it was paid, the employee would
be required to amend the previously filed
tax returns to pay the additional section
409A(a) taxes on such income).
IV.Application of Additional 20 Percent
Tax
Section 409A(a)(1)(B)(i)(II) provides
that if compensation is required to be
included in gross income under section
409A(a)(1)(A) for a taxable year, the
income tax imposed is increased by an
amount equal to 20 percent of the com-
pensation that is required to be included
in gross income. This amount is an ad-
ditional income tax, subject to the rules
governing the assessment, collection, and
payment of income tax, and is not an ex-
cise tax.
V.Application of Premium Interest Tax
A.In general
Section 409A(a)(1)(B)(i)(I) provides
that if compensation is required to be
included in gross income under section
409A(a)(1)(A) for a taxable year, the
income tax imposed is increased by an
amount equal to the amount of interest de-
termined under section 409A(a)(1)(B)(ii).
This amount is an additional income tax,
subject to the rules governing assessment,
collection, and payment of income tax,
and is not an excise tax or interest on an
underpayment. Section 409A(a)(1)(B)(ii)
provides that this premium interest tax is
determined as the amount of interest at
the underpayment rate (established under
section 6621) plus one percentage point
on the underpayments that would have
occurred had the deferred compensation
been includible in gross income for the
taxable year in which first deferred or, if
later, the first taxable year in which such
deferred compensation is not subject to
a substantial risk of forfeiture (vested).
Thus, section 409A(a)(1)(B) requires that
the premium interest tax be applied to
hypothetical underpayments where the hy-
pothetical underpayments are determined
by first allocating the amounts deferred
under the plan required to be included in
income under section 409A(a) to the initial
year (or years) the amount was deferred or
vested, then determining the hypothetical
underpayment that would have resulted
had such amounts been includible in in-
come at that time, and then determining
the interest that would be due upon that
hypothetical underpayment based upon a
premium interest rate equal to the under-
payment rate plus one percentage point.
B.Amounts to which the premium interest
tax applies
Section 409A(a)(1)(B)(ii) provides for
an additional tax based upon the inter-
est that would be applied to the resulting
underpayments of tax if the deferred com-
pensation includible in income under
section 409A(a) had been includible in
income in previous years. Because the
total amount deferred for the taxable year
in which a failure occurs (the current year)
may be less than the amounts deferred un-
der the same plan in a previous year due to
payments or deemed investment or other
losses in the previous year, so that a por-
tion of the amount deferred in the previous
year would not be includible in income
under section 409A(a) for the current year,
commentators have asked what amounts
deferred under the plan must be taken into
account in determining the premium in-
terest tax. Section 409A(a)(1)(B)(i) refers
firsttothecompensationrequiredtobe
included in gross income under section
409A(a)(1)(A). Accordingly, under the
proposed regulations the amount required
to be included in income under section
409A(a) for the taxable year is the only
deferred amount required to be allocated
to previous taxable years for purposes of
December 22, 200813342008–51 I.R.B.

determining the premium interest tax un-
der section 409A(a)(1)(B)(i)(I).
For example, assume an employee who
participates in a plan has a total amount
deferred in Year 1 of $100,000 and a total
amount deferred in Year 2 of $80,000 due
to deemed investment losses in Year 2. If
the plan fails to meet the requirements of
section 409A(a) in Year 2 (and not Year
1), the employee is required to include
$80,000 in income under section 409A(a).
In calculating the premium interest tax, the
employee must allocate only the $80,000
required to be included in income under
section 409A(a) to the year or years the
amount was first deferred or vested, even
though additional amounts were deferred
under the plan in previous taxable years.
C.Identification of initial years of deferral
for includible amounts
1. Identification of Amounts Deferred
in a Particular Taxable Year — General
Principles
To calculate the premium underpay-
ment interest tax, the taxable year or years
during which the amount required to be
included in income was first deferred or
first vested must be determined. The pro-
posed regulations provide that the amount
deferred during a particular taxable year
generally is the excess (if any) of the
vested total amount deferred for that tax-
able year over the vested total amount
deferred for the immediately preceding
taxable year. For example, if a service
provider first participated in a plan in the
taxable year 2010 and has a vested total
amount deferred under the plan for 2010
of $10,000, a vested total amount deferred
for 2011 of $15,000, and a vested total
amount deferred for 2012 of $25,000, then
the service providerwould be treated as
having first deferred $10,000 during 2010,
$5,000 during 2011, and $10,000 during
2012.
2. Identification of Initial Years of
Deferral — Treatment of Amounts
Previously Included in Income, Payments,
and Investment Losses
The general rule would apply in cases
where during previous taxable years there
have been no payments under the plan,
no net deemed investment or other losses,
andnoamountsotherwiseincludedinin-
come. If a service provider has received
a payment, incurred net deemed losses, or
included an amount in income, the general
rule would need to be modified. For ex-
ample, assume that the vested total amount
deferred for Year 1 is $100,000, for Year
2 is $200,000 (including a $50,000 pay-
ment), and for Year 3 is $250,000. If there
is a failure to meet the requirements of
section 409A(a) in Year 3, the service
provider would be required to include
$250,000 in income. The service provider
would also need to determine the year or
years during which the $250,000 was first
deferred and vested for purposes of calcu-
lating the premium interest tax. The issue
then arises whether the $50,000 payment
in Year 2 was a payment of an amount
first deferred and vested in Year 1 or Year
2. If the $50,000 payment is treated as a
payment of an amount first deferred and
vested in Year 1, then only $50,000 of
the $100,000 deferred in Year 1 would re-
main to be treated as part of the $250,000
includible in income in Year 3. In con-
trast, if the $50,000 payment is treated as
a payment of an amount first deferred in
Year 2, then the entire $100,000 deferred
in Year 1 would remain to be treated as
part of the $250,000. Similar issues arise
with respect to the treatment of deemed
investment losses and amounts previously
included in income.
Under the calculation method set forth
in the proposed regulations, payments,
deemed investment or other losses, and
amounts included in income during tax-
able years before the year in which the
failure occurs, generally are attributed
to amounts deferred and vested in the
earliest year or years in which there are
amounts deferred. The proposed calcula-
tion method generally achieves this result
by reducing the amount deferred for each
year preceding the payment or deemed
investment or other loss, and treating
only the remaining deferred amounts as
the source of the outstanding deferrals
and payments includible in income under
section 409A for the year in which the
failure occurs. This proposed rule gener-
ally should result in the lowest possible
amount of premium interest tax, because
deferred amounts includible in income un-
der section 409A would be treated as first
deferred and vested in the latest possible
years, resulting in less premium interest
on the hypothetical underpayments.
D.Calculation of the hypothetical
underpayment
The hypothetical underpayment would
be calculated as if the amount were paid
to the service provider as a cash payment
of compensation during the taxable year.
Further, the hypothetical underpayment
would be calculated based on the tax-
payer’s taxable income, credits, filing sta-
tus, and other tax information for the year,
based on the original return the taxpayer
filed for such year, as adjusted as a result
of any examination for such year or any
amended return the taxpayer filed for such
year that was accepted by the IRS. The hy-
pothetical underpayment would reflect the
effect that such additional compensation
would have had on the amount of Federal
incometaxowedbythetaxpayerforsuch
year, including the continued availability
of any deductions taken, and the use of
any carryovers such as carryover losses.
For purposes of calculating a hypothet-
ical underpayment in a subsequent year
(whether or not a portion of the deferred
amount was first deferred and vested in the
subsequent year), any changes to the tax-
payer’s Federal income tax liability for the
subsequent year that would have occurred
if the portion of the deferred amount that
was first deferred and vested during the
previous taxable year had been included
in the taxpayer’s income for the previous
year would be taken into account. For
example, if in calculating the hypothetical
underpayment for one year, an additional
amount of unused charitable contribution
deductions is absorbed, the use of the
additional charitable contributions would
be reflected in determining the hypothet-
ical underpayment for a subsequent year
(meaning that the same portion of the char-
itable contribution could not be deducted
twice in determining the hypothetical un-
derpayments for more than one year).
Calculation of the premium interest tax
would take into account only the conse-
quences the additional income would have
had on the Federal income tax due based
on items of income and deduction, cred-
its, filing status and similar information
existing as of the end of the taxable year
at issue. Other potential effects of the
additional compensation payment on ser-
2008–51 I.R.B.1335December 22, 2008

vice provider or service recipient actions
or elections would not be taken into ac-
count, including how such additional com-
pensation could have affected participation
in an employee benefit plan or other ar-
rangement. For example, the impact such
additional compensation would have had
on contributions to a qualified plan, even
if the additional compensation would have
affected the amount the service provider
would have been permitted or required to
contribute, would be disregarded.
E.Potential safe harbor calculation
methods
The Treasury Department and the IRS
recognize that calculation of the premium
underpayment interest tax may be cum-
bersome, potentially involving the recal-
culation of several years’ tax returns. In
response, the Treasury Department and the
IRS are considering whether safe harbor
calculation methods could be devised that
would reduce the calculation burden but
still result in an appropriate amount of tax
applicable to the amount includible in in-
come under section 409A(a). Specifically,
the Treasury Department and the IRS re-
quest comments on calculation methods
that would more easily identify the taxable
year or years during which an amount in-
cludible in income under section 409A(a)
was first deferred and vested, and that
would more easily determine the hypo-
thetical underpayments applicable to such
year or years. Comments should consider
both how the safe harbor method would
be applied by taxpayers, and the extent to
which such methods could be applied by
the IRS in the examination context.
VI.Treatment of Payments, Forfeitures, or
Permanent Losses of Deferred Amounts
in Taxable Years after the Amount is
Included in Income under Section 409A(a)
A.Payments of deferred compensation in
taxable years after the inclusion of such
amounts in income under section 409A(a)
Section 409A(c) provides that any
amount included in gross income under
section 409A is not required to be included
in gross income under any other provision
of the Code or any other rule of law later
than the time provided in section 409A.
Accordingly, if a service provider includes
an amount in income under section 409A,
the proposed regulations provide for a type
of deemed “basis” or “investment in the
contract” such that the amount would not
be required to be included in income again
(for example, when the amount was actu-
ally paid). For this purpose, the amount
previously included in income would be
treated as the inclusion in income of an
amount deferred under the plan, but would
not be allocated to any specific amount
deferred under the plan. Accordingly, if
an amount under the plan would be in-
cludible in income if section 409A were
disregarded (for example, because an
amount is paid under the plan), the amount
previously included in income would be
immediately applied to the amount paid
under the plan such that the amount paid
would not be required to be included in
gross income a second time.
For example, assume that in Year 1 an
employee defers $10,000 under a salary
deferral elective account balance plan and
is required to include that amount in in-
come under section 409A. Assume that
in Year 2 the employee defers $15,000
under the same salary deferral elective
account balance plan, and an additional
$5,000 under a bonus deferral elective
account balance plan, both of which are
compliant with section 409A. Assume that
in Year 3 the employee receives a pay-
ment of $5,000 under the bonus deferral
elective account balance plan. Because
the payment would be treated for purposes
of section 409A as made from a single
elective account balance plan in which the
employee participated, and because the
employee has already included $10,000 in
income under section 409A due to partic-
ipation in the plan, the employee would
apply $5,000 of the $10,000 that was pre-
viously included in income to the $5,000
payment and not include the $5,000 pay-
ment in gross income in Year 3 (or any
subsequent year). The remaining amount
previously included in income would be
$5,000.
The employee could not elect the extent
to which the amount previously included
in income would be applied in this context.
Rather, the amount previously included in
income would be required to be applied
immediately to the extent an amount de-
ferred under the same plan would other-
wise become includible in income under
a Code section other than section 409A.
The inclusion of any amount in income and
the resulting amount previously included
in income for subsequent years would not
affect the potential for earnings related to
such amounts to be subject to section 409A
or to be required to be included in income
under section 409A.
B.Permanent forfeiture or loss of a
deferred amount previously included in
income under section 409A(a)
The application of section 409A(a) may
require inclusion in income of amounts
that the service provider ultimately never
receives. This result may occur under four
different circumstances. First, because a
nonqualified deferred compensation plan
generally involves an unfunded, unsecured
promise of a service recipient to pay com-
pensation in a future year, the funds to pay
the deferred amount may not be available
in the future year. For example, the ser-
vice recipient may beinsolvent, bankrupt
or have ceased to exist at the time the pay-
ment is due.
Second, some amounts of deferred
compensation may be included in income
under section 409A(a) if the amounts are
subject to a risk of forfeiture, but the risk
of forfeiture does not qualify as a sub-
stantial risk of forfeiture. For example, a
deferred amount payable only if the ser-
vice provider does not compete with the
service recipient for a defined period is not
subject to a substantialrisk of forfeiture.
However, if the service provider actually
competes with the service recipient, the
service provider may forfeit the right to
the amount.
Third, the deferred amount may be sub-
ject to deemed investment losses. If losses
occur after the deferred amount has been
included in income under section 409A(a),
the amount paid to the service provider
may be less than the amount included in
income.
Fourth, in the case of a formula amount,
the calculation of the deferred amount
mayresultintheinclusioninincomeun-
der section 409A(a) of an amount that is
greater than the amount ultimately paid.
For example, if a service provider re-
ceives a right to a certain percentage of the
service recipient’s profits payable at sep-
aration from service,and determines that
the total amount deferred under the plan is
$100,000, once the profits are calculated
December 22, 200813362008–51 I.R.B.

the service provider may be entitled to a
lesser amount.
1. Effect on Service Provider
The proposed regulations provide that
a service provider who is required to in-
clude an amount in income under section
409A(a) with respect to a deferred amount
under a nonqualified deferred compen-
sation plan is entitled to a deduction at
thetimetheserviceprovider’slegally
binding right to all deferred compensation
under the plan (including all arrangements
treated as a single plan under the aggrega-
tion rules) is permanently forfeited under
the plan’s terms, or the right to such com-
pensation is otherwise permanently lost.
The available deduction would equal the
excess of the amount included in income
under section 409A(a) in a previous year
over any amount actually or construc-
tively received by the service provider. A
right to an amount would not be treated
as permanently lost merely because the
deferred amount had decreased, for ex-
ample due to deemed investment losses,
if the service provider retains a right to
an amount deferred under the plan. In
addition, a right to an amount would not
be treated as permanently forfeited or
otherwise lost if the obligation to make
such payment is substituted for another
deferred amount or obligation to make a
payment in a future year. However, the
right to an amount would be treated as per-
manently lost if the right to the payment of
the amount becomes wholly worthless. A
service provider would not be entitled to a
deduction with respect to an amount pre-
viously included in income under section
409A(a) if the service provider retains a
right to any amount deferred under all ar-
rangements treated asa single plan under
§1.409A–1(c)(2). However, if the entire
deferred amount payable under the plan
has been paid out and the service recipient
has no remaining liability to the service
provider under the plan, any remaining
unpaid deferred amount that had previ-
ously been included in income would be
treated as permanently lost.
Forexample,ifattheendofYear1
an employee has an account balance of
$100,000 which is required to be included
in income under section 409A, and at the
end of Year 2 an employee has an account
balance of $90,000 due to notional invest-
ment losses, the employee would not be
entitled to a deduction for Year 2. How-
ever, if in Year 3 the entire account bal-
ance of $95,000 is paid to the employee, so
there no longer are any amounts deferred
under the plan (determined after applying
applicable aggregation rules) and nothing
remains to be paid to the employee, the em-
ployee would be entitled to a $5,000 de-
duction for Year 3.
Inthecaseofaserviceproviderthat
is an employee, the available deduction
generally would be treated as a miscella-
neous itemized deduction, subject to the
deduction limitations applicable to such
expenses. Section 1341 would not be ap-
plicable to such deduction because inclu-
sion of an amount in income as a result
of noncompliance with section 409A(a)
would not constitute receipt of an amount
to which it appeared that the taxpayer had
an unrestricted right in the taxable year of
inclusion. In the first circumstance listed
above, a service provider that does not re-
ceive payment of deferred compensation
because of the bankruptcy or insolvency of
the service recipient retains the legal right
to the income even though the income is
not collectible. In each of the three other
circumstances in which such a deduction
becomes available, the deferred compen-
sation is not paid because of an event that
occurred after the taxable year in which
the amount deferred was included in in-
come under section 409A, rather than from
the absence of a right to the deferred com-
pensation in the year in which it was in-
cludible in gross income. Finally, certain
of such circumstances, such as the actual
amount received differing from the amount
included in income because the amount de-
ferred was a formula amount, result from
the inherent uncertainties in valuing rights
to such amounts, rather than from a lack of
a claim of right to income.
2. Effect on Service Recipient
If a service provider is entitled to a de-
duction with respect to a deferred amount
included in income under section 409A(a)
that is subsequently permanently forfeited
or otherwise lost, to the extent the service
recipient has benefited from a deduction or
increased the basis of an asset because the
deferred amount was included in the ser-
vice provider’s gross income, or such in-
clusion by the service provider has other-
wise reduced or could otherwise reduce the
service recipient’s gross income, the ser-
vice recipient may be required to recognize
income under the tax benefit rule and sec-
tion 111, or make other appropriate adjust-
ments to reflect that the deferred amount
included in income bythe service provider
under section 409A(a) has been perma-
nently forfeited or otherwise lost, and thus
will not be paid by the service recipient.
VII.Service Provider Income Inclusion
and Additional Taxes and Service
Recipient Reporting and Withholding
Obligations
A.Service provider income inclusion
The Treasury Department and the IRS
anticipate issuing interim guidance during
2008 addressing the extent to which tax-
payers may rely on the proposed regula-
tions with respect to the calculation of the
amounts includible in income under sec-
tion 409A(a) and the calculation of the ad-
ditional taxes under section 409A(a). The
interim guidance is also expected to ad-
dress the calculation of the amounts in-
cludible in income and additional taxes
under section 409A(b) and service recip-
ient reporting and withholding obligations
with respect to amounts includible in in-
come under section 409A(a) or (b) for tax-
able years beginning before the final regu-
lations become applicable. The Treasury
Department and the IRS anticipate that
such interim guidance will provide that
taxpayers may rely upon the proposed reg-
ulations in their entirety (but that taxpayers
may not rely on part, but not all, of the pro-
posed regulations).
B.Annual deferral reporting
Section 885(b) of the Act amended
sections 6041 and 6051 to require that
an employer or payer report all defer-
rals for the year under a nonqualified
deferred compensation plan on a Form
W–2, “Wage and Tax Statement”oraForm
1099–MISC, “Miscellaneous Income”,
regardless of whether such deferred com-
pensation is includible in gross income
under section 409A(a) (annual deferral
reporting). Notice 2007–89 permanently
waives this requirement for 2007 Forms
W–2 and Forms 1099. Notice 2006–100
permanently waives this requirement for
2005 and 2006 Forms W–2 and Forms
2008–51 I.R.B.1337December 22, 2008

1099. The Treasury Department and the
IRS anticipate that this reporting will
be implemented beginning with the first
taxable year for which these proposed reg-
ulations are finalized and effective. The
Treasury Department and the IRS further
anticipate that the annual deferral report-
ing rules will be based upon the principles
set forth in these regulations as finalized,
except that taxpayers will not be required
to report deferred amounts that are not
reasonably ascertainable (as defined in
§31.3121(v)(2)–1(e)(4)(i)(B)) until such
amounts become reasonably ascertainable.
The Treasury Department and the IRS
anticipate that the deferred amounts re-
quired to be reported will reflect earnings
on the amounts deferred in previous years,
if the amount of such earnings is reason-
ably ascertainable, because section 409A
specifically treats earnings on deferred
amounts as additional deferred amounts.
The Treasury Department and the IRS
request comments on the potential appli-
cation of the standards set forth in these
regulations to this reporting requirement,
including suggestions for possible adapta-
tions or modifications that may decrease
the administrative burden of compliance
while maintaining the integrity of the in-
formation reported.
C.Income inclusion reporting and income
tax withholding
Section 885(b) of the Act also amended
section 3401(a) to provide that the term
“wages” includes any amount includible
in the gross income of an employee un-
der section 409A, and amended section
6041 to require that a payer report amounts
includible in gross income under section
409A that are not treated as wages un-
der section 3401(a) (income inclusion re-
porting). Notice 2005–1 provides that an
employer should report amounts includi-
ble in gross income under section 409A
and in wages under section 3401(a) in box
1 of Form W–2 as wages paid to the em-
ployee during the year and subject to in-
come tax withholding, and that the em-
ployer should also report such amounts
in box 12 of Form W–2 using code Z.
Notice 2005–1 also provides that a payer
should report amounts includible in gross
income under section 409A and not treated
as wages under section 3401(a) as nonem-
ployee compensation in box 7 of Form
1099–MISC, and should also report such
amounts in box 15b of Form 1099–MISC.
Notice 2006–100 provided guidance on in-
come inclusion reporting for the 2005 and
2006 Forms W–2 and Forms 1099. Notice
2007–89 provided guidance on income in-
clusion reporting for the 2007 Forms W–2
and Forms 1099. The Treasury Depart-
ment and the IRS anticipate issuing further
interim guidance during 2008 on income
inclusion reporting for 2008 Forms W–2
and Forms 1099 for taxable years begin-
ning before the final regulations become
applicable. The Treasury Department and
the IRS anticipate that such interim guid-
ance will provide that taxpayers may rely
upon the proposed regulations in their en-
tirety (but that taxpayers may not rely on
part, but not all, of the proposed regula-
tions).
Amounts includible in an employee’s
income under section 409A also are treated
as wages for purposes of section 3401.
Notice 2007–89 provides guidance on a
service recipient’s income tax withhold-
ing obligations for 2007. The Treasury
Department and the IRS anticipate issuing
further interim guidance during 2008 on
a service recipient’s income tax withhold-
ing obligations forcalendar years begin-
ning before the final regulations become
applicable. The Treasury Department and
the IRS anticipate that such interim guid-
ance will provide that taxpayers may rely
upon the proposed regulations in their en-
tirety (but that taxpayers may not rely on
part, but not all, of the proposed regula-
tions).
Proposed Effective Date
These regulations are proposed to be
generally applicable for taxable years be-
ginning on or after the issuance of final
regulations. Before the applicability date
of the final regulations, taxpayers may rely
on these proposed regulations only to the
extent provided in further guidance.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations, and because the regulation does
not impose a collection of information
on small entities, the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel
for Advocacy of the Small Business
Administration for comment on its impact
on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and Treasury Department request
comments on the clarity of the proposed
rules and how they can be made easier to
understand. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled for
April 2, 2009 at 10:00 a.m., in the audi-
torium. Due to building security proce-
dures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediateentrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments and
an outline of the topics to be discussed
and the time to be devoted to each topic
(a signed original and eight (8) copies) by
March 9, 2009. A period of 10 minutes
will be allotted to each person for making
comments. An agenda showing the sched-
uling of the speakers will be prepared af-
ter the deadline for receiving outlines has
passed. Copies of the agenda will be avail-
able free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Stephen Tackney of the Office of
December 22, 200813382008–51 I.R.B.

Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties). However, other personnel from the
IRS and the Treasury Department partici-
pated in their development.
*****
Proposed Amendm
ents to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
Part 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.409A–0 is amended
by adding entries for §1.409A–4 to read as
follows:
§1.409A–0 Table of contents.
*****
§1.409A–4 Calculation of amount in-
cludible in income and additional income
taxes.
(a) Amount includible in income due to
failure to meet the requirements of section
409A(a).
(1) In general.
(i) Calculation formula.
(ii) Each taxable year analyzed inde-
pendently.
(A) In general.
(B) Treatment of certain deferred
amounts otherwise subject to a substantial
risk of forfeiture.
(iii) Examples.
(2)Identificationoftheportionofthe
total amount deferred for a taxable year
that is subject to a substantial risk of for-
feiture.
(i) In general.
(ii) Example.
(3) Identification of amount previously
included in income.
(i) In general.
(ii) Examples.
(b) The total amount deferred under a
plan for a taxable year.
(1) Application of general rules and
specific rules for specific types of plans.
(2) General definition of total amount
deferred.
(i) General calculation rules.
(ii) Actuarial assumptions and methods.
(A) Requirement of reasonable actuar-
ial assumptions and methods.
(B) Use of an unreasonable actuarial as-
sumption or method.
(iii) Crediting of earnings and losses.
(iv) Application of the general calcula-
tion rules to formula amounts.
(A) In general.
(B) Examples.
(v) Treatment of payment restrictions.
(vi) Treatment of alternative times and
forms of a future payment.
(A) In general.
(B) Effect of status of service provider
on available times and forms of payment.
(vii) Treatment of payment triggers
based upon events.
(A) In general.
(B) Certain payment triggers disre-
garded.
(viii) Treatment of amounts that may
qualify as short-term deferrals.
(ix) Examples.
(3) Account balance plans.
(i) In general.
(ii) Unreasonable rate of return.
(A) Application.
(B) Unreasonably high interest rate.
(C) Other rates of return.
(4) Reimbursement and in-kind benefit
arrangements.
(5) Split-dollar life insurance arrange-
ments.
(6) Stock rights.
(7) Anti-abuse provision.
(c) Additional 20 percent tax under sec-
tion 409A(a)(1)(B)(i)(II).
(d) Premium interest tax under section
409A(a)(1)(B)(i)(I).
(1) In general.
(2) Identification of taxable year de-
ferred amount was first deferred or vested.
(i) Method of identification.
(ii) Examples.
(3) Calculation of hypothetical under-
payment for the taxable year during which
a deferred amount was first deferred and
vested.
(i) Calculation method.
(ii) Examples.
(4) Calculation of hypothetical pre-
mium underpayment interest.
(i) Calculation method.
(ii) Examples.
(e) Amounts includible in income under
section 409A(b) [Reserved].
(f) Application of amounts included in
income under section 409A to payments of
amounts deferred.
(1) In general.
(2) Application of theplan aggregation
rules.
(3) Examples.
(g) Forfeiture or other permanent loss
of right to deferred compensation.
(1) Availability of deduction to the ser-
vice provider.
(2) Application of theplan aggregation
rules.
(3) Examples.
(h) Effective/applicability date.
*****
Par. 3. Section 1.409A–4 is added to
read as follows:
§1.409A–4 Calculation of amount
includible in income and additional
income taxes.
(a)Amount includible in income due to
failure to meet the requirements of section
409A(a)—(1)In general—(i)Calculation
formula. The amount includible in income
for a service provider’s taxable year due
to a failure to meet the requirements of
section 409A(a) with respect to a plan is
the excess (if any) of—
(A) The service provider’s total amount
deferred under the plan for the taxable
year, including the amount of any pay-
ments of amounts deferred under the plan
to (or on behalf of) the service provider
during such taxable year; over
(B) The portion of such amount, if any,
that is either subject to a substantial risk of
forfeiture (as defined in §1.409A–1(d) and
applying paragraph (a)(1)(ii)(B) of this
section) or has been previously included in
income (as defined in §1.409A–4(a)(3)).
(ii)
Each taxable year analyzed inde-
pendently—(A)In general. An amount
is includible in income under section
409A(a) for a taxable year only if a plan
fails to meet the requirements of sec-
tion 409A(a) during such taxable year.
Whether an amount is includible in in-
come for a taxable year due to a failure to
meet the requirements of section 409A(a)
during such taxable year is determined in-
dependently of whether such amounts are
also includible in income due to a failure to
meet the requirements of section 409A(a)
in a previous or subsequent taxable year.
2008–51 I.R.B.1339December 22, 2008

Accordingly, an amount may be includible
in income for a taxable year during which
a plan fails to meet the requirements of
section 409A(a), even if the same amount
was includible in income in a previous tax-
able year, except to the extent provided in
§1.409A–4(a)(3) (identification of amount
previously included in income).
(B)Treatment of certain deferred
amounts otherwise subject to a substantial
risk of forfeiture. For purposes of deter-
mining the amount includible in income
under section 409A(a) and paragraph
(a)(1)(i) of this section, if the facts and
circumstances indicate that a service recip-
ient has a pattern or practice of permitting
impermissible changes in the time and
form of payment with respect to nonvested
deferred amounts under one or more plans,
an amount deferred under a plan that is
otherwise subject to a substantial risk of
forfeiture is not treated as subject to a
substantial risk of forfeiture if an imper-
missible change in the time and form of
payment (including an impermissible ini-
tial deferral election) applies to the amount
deferred or if the facts and circumstances
indicate that the amount deferred would
be affected by such pattern or practice.
(iii)Examples. The following exam-
ples illustrate the provisions of this para-
graph (a)(1). For each of the examples,
Employee A is an individual taxpayer with
a calendar year taxable year. Employee A
has a total amount deferred under a non-
qualified deferred compensation plan of $0
in 2010, $100,000 in 2011, and $250,000
in 2012. No payments are made under the
plan. The plan under which the amounts
are deferred fails to meet the requirements
of section 409A(a) during 2011 and 2012.
The examples read as follows:
Example 1. With respect to Employee A, at no
time is any deferred amount subject to a substantial
risk of forfeiture. Employee A has $100,000 in-
cludible in income under section 409A(a) for 2011,
because no portion of the total deferred amount for
2011 is subject to a substantial risk of forfeiture
or has previously been included in income. If that
$100,000 is included in income for 2011, Employee
A has $150,000 includible in income under section
409A(a) for 2012 because for the taxable year 2012
the $100,000 is previously included in income (see
paragraphs (a)(1)(i)(B) and (a)(3) of this section). If
that $100,000 is not included in income for 2011,
Employee A has $250,000 includible in income
under section 409A(a) for 2012. Employee A does
not avoid the requirement to include $100,000 in
income under section 409A(a) for 2011 by including
$250,000 in income under section 409A(a) for 2012.
Example 2. The same facts asExample 1, except
that, with respect to Employee A, the statute of limi-
tations on assessments has expired for 2011, but has
not expired for 2012. Employee A has $250,000 in-
cludible in income under section 409A(a) for 2012,
because no portion of the total deferred amount for
2012 is subject to a substantial risk of forfeiture or
has previously been included in income.
(2)Identification of the portion of the
total amount deferred for a taxable year
that is subject to a substantial risk of for-
feiture—(i)In general. The portion of the
total amount deferred for a taxable year
that is subject to a substantial risk of for-
feiture (as defined in §1.409A–1(d)) is de-
termined as of the last day of the service
provider’s taxable year. Accordingly, an
amount may be includible in income un-
der section 409A(a) for a taxable year even
if such amount is subject to a substantial
risk of forfeiture during the taxable year if
the substantial risk of forfeiture lapses dur-
ing such taxable year, including if the sub-
stantial risk of forfeiture lapses after the
date the nonqualified deferred compensa-
tion plan under which the amount is de-
ferred first fails to meet the requirements
of section 409A(a).
(ii)Example. The following example
illustrates the provisions of this paragraph
(a)(2):
Employee B is an individual taxpayer with a
calendar year taxable year. Employee B has a total
amount deferred under a nonqualified deferred com-
pensation plan of $0 for 2010, $100,000 for 2011,
and $250,000 for 2012. No payments are made under
the plan. Under the terms of the plan, if Employee
B voluntarily separates from service before July 1,
2012, Employee B will forfeit 50 percent of the Em-
ployee B’s total amount deferred under the plan. If
Employee B voluntarily separates from service after
June 30, 2012 but before July 1, 2013, Employee B
will forfeit 20 percent of the total amount deferred
under the plan. If Employee B voluntarily separates
from service after June 30, 2013, Employee B will
not forfeit any amount deferred under the plan. As of
December 31, 2011, 50 percent of the total amount
deferred under the plan ($50,000) is subject to a sub-
stantial risk of forfeiture, and the remaining amount
deferred under the plan ($50,000) is not subject to
a substantial risk of forfeiture. As of December 31,
2012, 20 percent of the total amount deferred under
the plan ($50,000) is subject to a substantial risk of
forfeiture, and the remaining amount deferred under
the plan ($200,000) is not subject to a substantial risk
of forfeiture. At all times the terms of the plan meet
the requirements of section 409A(a) and the applica-
ble regulations, and through May 31, 2012, the plan
is operated in a manner that complies with the terms
of the plan. On June 1, 2012, the plan is operated in a
manner that fails to meet the requirements of section
409A(a). For purposes of determining the amount
includible in income under section 409A(a), except
as provided in paragraph (a)(1)(ii)(B) of this section,
the portion of the total amount deferred for 2012 that
is subject to a substantial risk of forfeiture is $50,000
(20 percent of $250,000).
(3)Identification of amount previously
included in income—(i)In general.For
purposes of this section, an amount is pre-
viously included in income only if the ser-
vice provider has included the amount in
income under an applicable provision of
the Internal Revenue Code for a previous
taxable year. An amount is treated as in-
cluded in income for a taxable year only to
the extent that the amount was properly in-
cludible in income and the service provider
actually included the amount in income
(including on an original or amended re-
turn or as a result of an IRS examina-
tion or a final decision of a court of com-
petent jurisdiction). For future taxable
years, the amount previously included in
income is reduced to reflect any amount
that was paid during the taxable year for
which the amount was included in income,
any amount allocated to a payment made
under the plan under paragraph (f) of this
section, and any amount deductible under
paragraph (g) of this section.
(ii)Examples. The following examples
illustrate the provisions of this paragraph
(a)(3). For all of the examples, Employee
C is an individual taxpayer with a calendar
year taxable year. Employee C has a to-
tal amount deferred under a nonqualified
deferred compensation plan of $0 in 2010,
$100,000 in 2011, and $250,000 in 2012.
With respect to Employee C, the statute of
limitations on assessments has not expired
for 2011 or 2012. Except as otherwise ex-
plicitly provided in the following exam-
ples, Employee C has not included in in-
come for 2011 on any original or amended
tax return any amount deferred under the
plan, none of the $250,000 total amount
deferred for 2012 has previously been in-
cluded in income, no payments are made
under the plan, and at no time is any de-
ferred amount subject to a substantial risk
of forfeiture. The plan under which the
amounts are deferred fails to meet the re-
quirements of section 409A(a) during 2011
and 2012. The examples read as follows:
Example 1. After filing an original Federal in-
come tax return for 2011 that did not include any
amount in income under section 409A(a), on April 1,
2013, Employee C files an amended Federal income
tax return for 2011 and properly includes $100,000 in
income under section 409A(a) for 2011. For purposes
of determining the amount includible in income under
section 409A(a) for 2012, $100,000 of the $250,000
December 22, 200813402008–51 I.R.B.

total amount deferred for 2012 has previously been
included in income with respect to the plan. For
2012, Employee C includes in income $150,000 un-
der section 409A(a) on Employee C’s original Fed-
eral income tax return. As of January 1, 2013, the
amount that Employee C has previously included in
income under section 409A(a) with respect to the plan
is $250,000.
Example 2. The facts are the same as inExample
1, except that Employee C receives a $10,000 pay-
ment in 2011 so that the total amount deferred for
2012 is $240,000. For purposes of determining the
amount includible in income under section 409A(a)
for 2012, the $100,000 amount previously included
in income is reduced by the $10,000 payment so that
$90,000 of the $240,000 total amount deferred for
2012 has previously been included in income. For
2012, Employee C includes in income $150,000 un-
der section 409A(a) on Employee C’s original Fed-
eral income tax return. As of January 1, 2013, the
amount that Employee C has previously included in
income under section 409A(a) with respect to the plan
is $240,000.
Example 3. The facts are the same as inEx-
ample 2. Due to deemed investment losses during
2013, Employee C has an $80,000 total amount de-
ferred under the plan for 2013. On December 31,
2013, Employee C’s total amount deferred ($80,000)
is paid to Employee C as a single sum payment. Pur-
suant to paragraph (f) of this section, $80,000 of the
$240,000 amount previously included in income is al-
located to the $80,000 payment so that none of the
$80,000 is includible in income. In addition, pur-
suant to paragraph (g) of this section, Employee C
is entitled to deduct $160,000 for 2013 equal to the
remaining amount previously included in income the
right to which is permanently lost. Because the en-
tire $240,000 amount previously included in income
has been allocated to a payment under paragraph (f)
of this section or was deductible under paragraph (g)
of this section, no portion of such amount is treated as
previously included in incomefor2014oranysubse-
quent taxable year. As of January 1, 2014, the amount
that Employee C has previously included in income
under section 409A(a) with respect to the plan is $0.
(b)The total amount deferred under
aplanforataxableyear—(1)Applica-
tion of general rules and specific rules
for specific types of plans. Paragraph
(b)(2) of this section provides general
rules governing the determination of the
total amount deferred under a plan for a
taxable year, including the treatment of
plans providing for alternative times and
forms of payment and plans providing
for certain payments the amount of which
is determined by a formula that includes
one or more variables dependent upon
future events (formula amounts). Para-
graphs (b)(3) through (b)(6) of this section
provide specific rules governing the de-
termination of the total amount deferred
under certain types of plans. Except as
otherwise provided, any applicable rules
of paragraphs (b)(3) through (b)(6) of this
section are applied in conjunction with the
general rules provided in paragraph (b)(2)
of this section.
(2)General definition of total amount
deferred—(i)General calculation rules.
Except as otherwise provided, the total
amount deferred for a taxable year equals
the present value of the future payments
to which the service provider has a legally
binding right under the plan as of the last
day of the taxable year, plus the amount of
any payments of amounts deferred under
the plan to (or on behalf of) the service
provider during such taxable year. For
purposes of this section, present value
means the value, as of a specified date, of
an amount or series of amounts due there-
after, determined in accordance with the
rules and assumptions of this paragraph
(b)(2), as applicable, where each amount
is multiplied by the probability that the
condition or conditions on which payment
of the amount is contingent will be satis-
fied, also determined in accordance with
the rules and assumptions set forth in this
paragraph (b)(2), as applicable, discounted
according to an assumed rate of interest to
reflect the time value of money. For this
purpose, a discount for the probability that
an employee will die before commence-
ment of benefit payments is permitted,
but only to the extent that benefits will
be forfeited upon death. In addition, the
present value cannot be discounted for
the probability that payments will not be
made (or will be reduced) because of the
unfunded status of the plan, the risk associ-
ated with any deemed or actual investment
of amounts deferred under the plan, the
risk that the service recipient, the trustee,
or another party will be unwilling or un-
able to pay, the possibility of future plan
amendments, the possibility of a future
change in the law, or similar risks or con-
tingencies. If the amount payable under a
plan or the value of a benefit under a plan
is expressed in a currency other than the
U.S. dollar, the total amount deferred is
translated from foreign currency into U.S.
dollars at the spot exchange rate on the
last day of the service provider’s taxable
year. No adjustment is made to the total
amount deferred to reflect the risk that the
currency in which the amount payable or
the value of the benefit is expressed may
in the future increase or decrease in value
with respect to the U.S. dollar or any other
currency.
(ii)Actuarial assumptions and meth-
ods—(A)Requirement of reasonable actu-
arial assumptions and methods. For pur-
poses of this section, the present value
must be determined as of the last day of
the service provider’s taxable year using
actuarial assumptions and methods that are
reasonable as of that date, including an in-
terest rate for purposes of discounting for
present value that is reasonable as of that
date.
(B)Use of an unreasonable actuarial
assumption or method. If any actuarial as-
sumption or method used to determine the
total amount deferred for a taxable year
under a plan is not reasonable, as deter-
mined by the Commissioner, then the to-
tal amount deferred is determined by the
application of the AFR and, if applicable,
the applicable mortality table under sec-
tion 417(e)(3)(A)(ii)(I) (the 417(e) mortal-
ity table), both determined as of the last
month of the taxable year for which the
amount deferred is being determined. For
purposes of this section,AFRmeans the
appropriate applicable Federal rate (as de-
fined pursuant to section 1274(d)) based
on annual compounding, for the last month
of the taxable year for which the amount
includible in income is being determined.
The period for which excess interest will
be credited, beginning with the last day of
the taxable year and ending with the date
the excess interest will no longer be cred-
ited (determined in accordance with the
payment timing assumptions set forth in
paragraph (b)(2)(vi) and (vii) of this sec-
tion) is used to determine the appropriate
AFR (short-term, mid-term, or long-term).
(iii)Crediting of earnings and losses.
The earnings and losses credited under
a plan as of the last day of the service
provider’s taxable year pursuant to the
plan are given effect only to the extent the
plan’s terms reasonably reflect the value
of the service provider’s rights under the
plan. For example, a plan’s method of
determining the amount of such earnings
or losses generally will be respected for
purposes of determining the total amount
deferred for the taxable year, provided
that the earnings and losses are credited at
least once per taxable year. If earnings and
losses are not credited at least annually, the
total amount deferred is calculated as if the
earnings or losses were credited as of the
last day of the taxable year. In addition,
any change in the schedule for crediting
2008–51 I.R.B.1341December 22, 2008

earnings during the taxable year for which
the total amount deferred is calculated
that would reduce the earnings credited
for a taxable year in which an amount is
required to be included in income under
section 409A(a) is disregarded for such
taxable year. For example, if a plan is
amended during a taxable year that is a cal-
endar year to change the date for crediting
earnings from December 31 to July 1 of
that year and the plan fails to meet the re-
quirements of section 409A(a) during that
year, the amendment is disregarded for
purposes of determining the total amount
deferred for the year and December 31 is
treated as the date for crediting earnings
and losses. If no further changes are made
to the plan with respect to the crediting of
earnings and losses, for subsequent tax-
able years, July 1 is treated as the date for
crediting earnings and losses.
(iv)Application of the general calcu-
lation rules to formula amounts—(A)In
general. With respect to a right to a pay-
ment to which this paragraph applies, the
amount payable for purposes of determin-
ing the total amount deferred for the tax-
able year must be determined based on
all of the facts and circumstances exist-
ing as of the close of the last day of the
taxable year. Such determination must re-
flect reasonable, good faith assumptions
with respect to any contingencies as to the
amount of the payment, both with respect
to each contingency and with respect to
all contingencies in the aggregate. An as-
sumption based on the facts and circum-
stances as of the close of the last day of
a taxable year may be reasonable even
if the facts and circumstances change in
a subsequent year so that if the amount
payable were determined for such subse-
quent year, the amount payable would be
a greater (or lesser) amount. In such a
case, the increase (or decrease) due to the
change in the facts and circumstances is
treated as earnings (or losses). This para-
graph (b)(2)(iv) applies to the extent that
the amount payable in a future taxable year
is dependent upon factors that, after apply-
ing the assumptions and other rules set out
in this section, are not determinable as of
the end of the taxable year for which the
total amount deferred is being calculated,
so that the amount payable may not read-
ily be determined as of the end of such
taxable year under the other provisions of
this section. If a portion of a deferred
amount is determinable under the other
rules of this paragraph (b)(2), the determi-
nation of the amount deferred with respect
to such portion must be determined under
the rules applicable to amounts that are not
formula amounts, and only the balance of
the deferred amount is determined under
this paragraph.
(B)Examples. The following examples
illustrate the provisions of this paragraph
(b)(2)(iv):
Example 1. On January 1, 2020, a service
provider receives a legally binding right to a payment
of one percent of the service recipient’s net profits for
the calendar years 2020, 2021, and 2022, payable on
the later of January 1, 2024 or the service provider’s
separation from service. The amount payable is a
formula amount and this paragraph (b)(2)(iv) applies.
Example 2. On January 1, 2020, a service
provider receives a legally binding right to a payment
of the greater of one percent of the service recipient’s
net profits for the calendar years 2020, 2021, and
2022 or $10,000, payable on the later of January
1, 2024 or the service provider’s separation from
service. The portion of the amount payable that is
a $10,000 payment, payable at the later of January
1, 2024 or the service provider’s separation from
service, is not a formula amount. The portion of
the amount payable that is the excess, if any, of one
percent of the service recipient’s net profits for the
calendar years 2020, 2021, and 2022 over $10,000
is a formula amount and this paragraph (b)(2)(iv)
applies.
Example 3. On January 1, 2020, a service
provider receives a legally binding right to payment
equal to the value of 10,000 shares of service recipi-
ent stock, payable on the later of January 1, 2024 or
the service provider’s separation from service. Be-
cause the amount payable may increase or decrease
only due to a change in value of a predetermined
actual investment (10,000 shares of service recipient
stock), the amount payable is not treated as a formula
amount and this paragraph (b)(2)(iv) does not apply.
(v)Treatment of payment restrictions.
Except as specifically provided, a restric-
tion on the payment of all or part of a de-
ferred amount that will or may lapse under
the terms of the plan, including a risk of
forfeiture that is nota substantial risk of
forfeiture as defined in §1.409A–1(d) or is
disregarded under §1.409A–4(a)(1)(ii)(B),
is ignored for purposes of determining the
total amount deferred under the plan. Ac-
cordingly, in calculating the total amount
deferred, there is no reduction to account
for a risk that the amount may be forfeited
if the risk of forfeiture is not a substan-
tial risk of forfeiture. For example, if an
amount deferred is subject to forfeiture un-
der a noncompetition provision applicable
for a prescribed period, the forfeiture pro-
vision is disregarded for purposes of de-
termining the total amount deferred for the
taxable year.
(vi)Treatment of alternative times and
forms of a future payment—(A)In gen-
eral. For purposes of determining the total
amount deferred for a taxable year, if pay-
ment of a deferred amount may be made
at alternative times or in alternative forms,
each amount deferred under the plan is
treated as payable at the time and under
the form of payment for which the present
value is highest. A time and form of pay-
ment is available to the extent a deferred
amount under the plan may be payable
in such time and form of payment under
the plan’s terms. If the service recipi-
ent has commenced payment of a deferred
amount in a time and form of payment
under the plan, or the service provider or
service recipient has elected a time and
form of payment under the plan, and under
the plan’s terms neither party can change
such time and form of payment without
the consent of the other party (and such
consent requirement has substantive sig-
nificance), the time and form of payment
elected or the time and form of payment
in which payments have commenced is
treated as the sole available time and form
of payment for such amount. If an alter-
native time and form of payment is avail-
able only at the servicerecipient’s discre-
tion, the time and form of payment is not
available unless the service provider has a
legally binding right under the principles
of §1.409A–1(b)(1) to any additional value
that would be generated by the service re-
cipient’s exercise of such discretion. For
purposes of determining the value of each
available time and form of payment, the
assumptions and methods described in this
paragraph (b)(2)(vi) are applied, and then
the value of each available time and form
of payment is determined in accordance
with the other applicable rules provided in
paragraph (b) of this section.
(B)Effect of status of service provider
on available times and forms of payment.
For purposes of determining whether a
time and form of payment is available, if
eligibility for a time and form of payment
depends upon the service provider’s status
as of a future date, the service provider
is assumed to continue in the service
provider’s status as of the last day of the
taxable year. However, if the eligibility
requirement is notbona fideand does not
serve abona fidebusiness purpose, the
December 22, 200813422008–51 I.R.B.

eligibility requirement will be disregarded
and the service provider will be treated
as eligible for the alternative time and
form of payment. For this purpose, an
eligibility condition based upon the ser-
vice provider’s marital status (including
status as a registered domestic partner or
similar requirement), parental status, or
status as a U.S. citizen or lawful perma-
nent resident under section 7701(b)(6) is
presumed to bebona fideand serve abona
fidebusiness purpose. Notwithstanding
the foregoing, if eligibility for a certain
time or form of payment includes abona
fiderequirement that the service provider
provide additional services after the end
of the taxable year, the time and form of
payment is not treated as an available time
and form of payment. The rules of this
paragraph (b)(2)(vi)(B) apply regardless
of whether the service provider’s status
changes during a subsequent taxable year.
(vii)Treatment of payment triggers
based upon events—(A)In general.For
purposes of determining the total amount
deferred for a taxable year, if a payment
trigger has occurred on or before the last
day of the taxable year, a deferred amount
payable upon such trigger is treated as
payable at the time the payment is sched-
uled to be made under the terms of the
plan. If the payment trigger has not oc-
curred on or before the last day of the
taxable year, the trigger is treated as occur-
ring on the earliest possibledatethetrigger
reasonably could occur based on the facts
and circumstances as of the last day of the
taxable year, and the deferred amount is
treated as payable based upon the sched-
ule of payments that would be triggered
by such occurrence. Notwithstanding the
foregoing, if the payment trigger requires
a separation from service, a termination of
employment, or other similar reduction or
cessation of services, the service provider
is treated as meeting such requirement as
of the last day of the taxable year. For
purposes of determining the earliest date
the payment trigger reasonably could oc-
cur, whether the payment trigger actually
occurs in a subsequent taxable year is dis-
regarded. For purposes of this paragraph
(b)(2)(vii), a payment trigger means an
event (not including the mere passage of
time) upon which an amount may become
payable. Generally if an amount would
be payable in a different time and form
of payment depending upon some char-
acteristic of an event, each type of event
upon which an amount would become
payable is treated as a separate payment
trigger. For example, if an amount would
be payable as a single sum payment if one
subsidiary corporation of a service recipi-
ent that consists of multiple corporations
is sold, but as an installment payment if
another subsidiary corporation of the same
service recipient is sold, then the sale of
the one subsidiary corporation is treated
as a separate payment trigger from the sale
of the other subsidiary corporation.
(B)Certain payment triggers disre-
garded. The possibility that the following
payment triggers will occur in the future
is disregarded for purposes of determin-
ing the total amount deferred (but not for
purposes of determining whether the plan
otherwise complies with the requirements
of section 409A(a)):
(1) A payment trigger that, if the trig-
ger were the sole trigger determining when
the amount would become payable, would
cause the amount to be subject to a sub-
stantial risk of forfeiture, provided that
if there is more than one payment trig-
ger applicable to an amount that other-
wise would be disregarded under this para-
graph (b)(2)(vii)(B)(1), none of such pay-
ment triggers will be disregarded unless all
such payment triggers, if applied in combi-
nation as the only payment triggers, would
also cause the amount to be subject to a
substantial risk of forfeiture.
(2) An unforeseeable emergency (as de-
fined in §1.409A–3(i)(3)).
(viii)Treatment of amounts that may
qualify as short-term deferrals. For pur-
poses of calculating the total amount
deferred for a taxable year, the right to a
payment that, under the terms of the ar-
rangement and the facts and circumstances
as of the last day of the taxable year, may
be a short-term deferral as defined un-
der §1.409A–1(b)(4), is not included in
the total amount deferred. In addition,
even if such amount is not paid by the
end of the applicable 2
1
/2month period
so that the amount is deferred compensa-
tion, the amount is not includible in the
total amount deferred until the service
provider’s taxable year in which the appli-
cable 2
1
/2monthperiodexpires.
(ix)Examples. The following exam-
ples illustrate the provisions of paragraphs
(b)(2)(vi) through (viii) of this section. For
all of the examples, the service provider
is an individual taxpayer who is an em-
ployee of the service recipient, the service
provider has a calendar year taxable year,
and the total amount deferred is being cal-
culated for the taxable year ending Decem-
ber 31, 2010. In each case, the service
provider is not entitled to earnings on the
amount deferred. The examples read as
follows:
Example 1. Employee D, who is employed by
Employer Z, is entitled to commence receiving pay-
ments at age 65. The plan provides that Employee
D will receive a single sum payment, except that, af-
ter Employee D attains age 62 but before Employee
D attains age 64 (whether or not Employee D is then
employed by Employer Z), Employee D can elect to
receive payments as a single life annuity. Employee
D is age 54 as of December 31, 2010. For purposes
of determining the available times and forms of pay-
ment, Employee D is assumed to survive to age 62
and be eligible to elect a single life annuity. Accord-
ingly, for purposes of determining the total amount
deferred for 2010, the amount is treated as payable as
either a single sum payment or a single life annuity,
whichever is more valuable.
Example 2. Employee E is entitled to a single life
annuity commencing on January 1, 2020 if Employee
E is not married as of January 1, 2020. Employee E
is entitled to either a single life annuity or a subsi-
dized joint and survivor annuity commencing on Jan-
uary 1, 2020 if Employee E is married as of January
1, 2020. Employee E is not married as of Decem-
ber 31, 2010. For purposes of determining the total
amount deferred for 2010, Employee E is assumed to
remain unmarried indefinitely, so that the subsidized
joint and survivor annuity is not an available form
of payment. Accordingly, for purposes of determin-
ing the total amount deferred for 2010, the amount is
treated as payable as a single life annuity commenc-
ing January 1, 2020.
Example 3. Employee F is entitled to a series of
three payments of $1,000 due on January 1, 2020,
January 1, 2021, and January 1, 2022. Under the
plan’s terms, Employer X has the discretion to accel-
erate one or more of the payments, provided that no
payment may be made before January 1, 2020. Be-
cause there is no reduction in the amount payable if
a payment is accelerated, an accelerated payment is
more valuable than a payment made in accordance
with the three-year schedule of payments. If Em-
ployee F does not have a legally binding right to a
single sum payment on January 1, 2020 (or any other
form of accelerated payment), then an accelerated
payment is not an available time and form of payment
and, for purposes of determining the total amount de-
ferred for 2010, the amount is treated as payable as
a series of three payments of $1,000 on January 1,
2020, January 1, 2021, and January 1, 2022.
Example 4. ThefactsarethesameasinExam-
ple 3, except that Employer X has no discretion to
accelerate one or more of the payments. Rather, Em-
ployee F has the right to accelerate one or more of the
payments provided that a payment may not be paid at
any date before the later of January 1, 2020 or the
date 12 months after the date of such election. As
of December 31, 2010, theearliest date upon which
Employee F may elect to have a payment made is Jan-
2008–51 I.R.B.1343December 22, 2008

uary 1, 2020. Because there is no reduction in the
amount payable if a paymentis accelerated, the earli-
est possible date of payment is the most valuable time
and form of payment. Accordingly, for purposes of
determining the total amount deferred for 2010, the
amount is treated as payable as a single sum payment
of $3,000 on January 1, 2020.
Example 5. Employee G is entitled to a single
sum payment upon separation from service if Em-
ployee G separates from service before January 1,
2020 and a single life annuity if Employee G sep-
arates from service after December 31, 2019. As
of December 31, 2010, Employee G has not sepa-
rated from service. Under paragraph (b)(2)(vi)(A)
of this section, the total amount deferred is deter-
mined based upon the amount that would be payable
if Employee G separated from service on December
31, 2010. Accordingly, the single life annuity is not
treated as an available time and form of payment, so
that the amount is treated as payable as a single sum
payment upon separation from service.
Example 6. Employee H is entitled to a single
sum payment of deferred compensation upon the ear-
lier of January 1, 2020 or an unforeseeable emer-
gency. Because the payment upon an unforeseeable
emergency is disregarded, for purposes of determin-
ing the total amount deferred, the deferred amount is
treated as payable only on January 1, 2020.
Example 7. Employee I is entitled to a single
sum payment of deferred compensation upon the ear-
lier of January 1, 2020 or Employee I’s involuntary
separation from service. Under the facts and cir-
cumstances existing at the time the right to the pay-
ment was granted, if the deferred amount had been
payable only upon EmployeeI’s involuntary separa-
tion from service, the amount would have been sub-
ject to a substantial risk of forfeiture. Under para-
graph (b)(2)(iv)(B) of this section, the right to a pay-
ment upon the Employee I’s involuntary separation
from service is disregarded, and the amount is treated
as payable only on January 1, 2020.
Example 8. Employee J is entitled to a single
sum payment of deferred compensation upon the ear-
lier of January 1, 2020 or Employee J’s separation
from service. As of December 31, 2010, Employee
J has not separated from service. Under paragraph
(b)(2)(vi)(A) of this section, the total amount deferred
is determined based upon the amount that would be
payable if Employee J separated from service on De-
cember 31, 2010 and therefore had the right to re-
ceive the payment on December 31, 2010. The total
amount deferred for 2010 isthe greater of the amount
that would be payable on December 31, 2010 or the
present value of the amount that would be payable on
January 1, 2020.
Example 9. Employee K is entitled to a single
sum payment of deferred compensation upon the
earlier of January 1, 2020 or the first day of the
third month following Employee K’s separation from
service. As of December 31, 2010, Employee K
has not separated from service. Under paragraph
(b)(2)(vi)(A) of this section, the total amount de-
ferred is determined based upon the amount that
would be payable if Employee K separated from
service on December 31, 2010, and therefore had
a right to a payment on March 1, 2011. The total
amount deferred for 2010 is the greater of the present
value as of December 31, 2010 of the amount that
wouldbepayableonMarch1,2011orthepresent
value as of December 31, 2010 of the amount that
would be payable on January 1, 2020.
Example 10. Employee L is entitled to a single
sum payment of deferred compensation upon the ear-
lier of January 1, 2020 or a separation from service
that occurs on or before July 1, 2010. As of Decem-
ber 31, 2010, Employee L has not separated from ser-
vice. For purposes of determining the total amount
deferred,therighttobepaiduponaseparationfrom
service on or before July 1, 2010 is ignored because
it is no longer a possible payment trigger, and the
amount is treated as payable only on January 1, 2020.
Example 11. Employee M is entitled to a single
sum payment of deferred compensation upon the
earliest of the date Employee M dies, Employee M
attains age 65, or a child of Employee M becomes
a full-time student at an accredited college or uni-
versity (whether or not Employee M continues to be
employed on such date). As of December 31, 2010,
Employee M has a 10-year old child who is in the
fifth grade. For purposes of determining the total
amount deferred, the earliest time that the payment
reasonably could be due upon Employee M’s child
entering a college or university is August 1, 2018.
Thus, the total amount deferred for 2010 is the more
valuable of the amount that would be payable on
the Employee M’s 65
th
birthday and the amount that
would be payable on August 1, 2018. Because any
additional value that would be payable upon Em-
ployee M’s death is a death benefit excluded from the
definition of deferred compensation under section
409A(d)(1)(B) and §1.409A–1(a)(5), that additional
value, if any, is not required to be calculated.
(3)Account balance plans—(i)In gen-
eral. For purposes of this section, if
benefits are provided under a nonquali-
fied deferred compensation plan that is
described in §1.409A–1(c)(2)(i)(A) or (B)
(an account balance plan), the present
value of the amount payable equals the
amount credited to the service provider’s
account as of the last day of the taxable
year, including both the principal amount
credited to the account, and any earnings or
losses attributable to the principal amounts
credited to the account through the last
day of the taxable year. For purposes
of this section, earnings or losses means
any increase or decrease in the amount
credited to a service provider’s account
that is attributable to amounts previously
credited to the service provider’s account,
regardless of whether the plan denomi-
nates that increase or decrease as earnings
or losses. For rules related to the crediting
of earnings, see paragraph (b)(2)(iii) of
this section. For rules relating to earnings
based on an unreasonable interest rate or a
rate of return based on an investment other
than a single predetermined actual invest-
ment or a single reasonable interest rate,
see paragraph (b)(3)(ii) of this section.
(ii)Unreasonable rate of return—(A)
Application. This paragraph (b)(3)(ii)
applies to an account balance plan under
which the amount of earnings or losses
credited is not based on either a prede-
termined actual investment, within the
meaning of §31.3121(v)(2)–1(d)(2)(i)(B)
of this chapter, or a rate of interest
that is not higher than a reasonable
rate of interest, within the meaning of
§31.3121(v)(2)–1(d)(2)(i)(C) of this chap-
ter, as determined by the Commissioner.
(B)Unreasonably high interest rate.If
the earnings or losses to be credited under
aplanarebasedonanunreasonablyhigh
rate of interest, the amount deferred un-
der the plan is equal to the present value
as of the end of the taxable year (using a
reasonable interest rate) of the amount that
will be credited to the service recipient’s
account using the unreasonably high rate
for the entire period for which the unrea-
sonably high interest will be credited un-
der the plan, beginning with the last day
of such taxable year and ending with the
date the unreasonably high interest will no
longer be credited (determined in accor-
dance with the payment timing assump-
tions set forth in paragraph (b)(2)(vi) and
(vii) of this section). If the service recip-
ient fails to use a reasonable interest rate
to determine the amount includible in in-
come, AFR will be used. For purposes
of this section,AFRmeans the appropri-
ate applicable Federal rate (as defined pur-
suant to section 1274(d)) based on annual
compounding, for the last month of the tax-
able year for which the amount includi-
ble in income is being determined. The
period described in the first sentence of
this paragraph (b)(3)(ii)(B) is used to de-
termine the appropriate AFR (short-term,
mid-term, or long-term). For purposes
of this paragraph (b)(3)(ii)(B), an unrea-
sonably high interest rate includes a fixed
interest rate that exceeds an interest rate
that is reasonable, within the meaning of
§31.3121(v)(2)–1(d)(2)(i)(C) of this chap-
ter.
(C)Other rates of return. If the amount
of earnings or losses credited is based
on a rate of return that is not an un-
reasonably high interest rate, within the
meaning of paragraph (b)(3)(ii)(B) of this
section, but is also not a predetermined
actual investment, within the meaning of
§31.3121(v)(2)–1(d)(2)(i)(B) of this chap-
ter or a rate of interest that is no more than
December 22, 200813442008–51 I.R.B.

a reasonable rate of interest, within the
meaning of §31.3121(v)(2)–1(d)(2)(i)(C)
of this chapter, the amount payable is a
formula amount.
(4)Reimbursement and in-kind ben-
efit arrangements. For purposes of this
section, if benefits for a service provider
are provided under a nonqualified de-
ferred compensation plan described in
§1.409A–1(c)(2)(i)(E) (a reimbursement
arrangement), or under a nonqualified de-
ferred compensation plan that would be
described in §1.409A–1(c)(2)(i)(E) except
that the amounts, separately or in the ag-
gregate, constitute a substantial portion of
either the overall compensation earned by
the service provider for performing ser-
vices for the service recipient or the overall
compensation received due to a separation
from service, the arrangement is treated
as providing for a formula amount to the
extent that the expenses to be reimbursed
are not explicitly identified to be a specific
amount. Notwithstanding the foregoing,
if the expenses eligible for reimbursement
are limited, it is presumed that the limit
reflects the reasonable amount of eligible
expenses that the service provider will
incur at the earliest possible date during
the time period to which the limit applies,
and for which the service provider will
request reimbursement at the earliest pos-
sible date that the service provider may
request reimbursement. This presumption
may be rebutted only by demonstrating
by clear and convincing evidence that
it is unreasonable to assume that a ser-
vice provider would incur such amount
of expenses during the applicable time
period. This presumption is not appli-
cable to any reimbursement arrangement
to which §1.409A–3(i)(1)(iv)(B) applies
(certain medical reimbursement arrange-
ments). In addition, this paragraph (b)(4)
also applies to an arrangement providing a
service provider a right to in-kind benefits
from the service recipient, or a payment
by the service recipient directly to the per-
son providing the goods or services to the
service provider.
(5)Split-dollar life insurance arrange-
ments. For purposes of this section, if ben-
efits for a service provider are provided un-
der a nonqualified deferred compensation
plan described in §1.409A–1(c)(2)(i)(F)
(a split-dollar life insurance arrangement),
the amount of the future payment to which
the service provider is entitled is treated
as the amount that would be includible
in income under §1.61–22 or §1.7872–15
(as applicable) or, if those regulations are
not applicable, the amount that would be
includible in income under any other ap-
plicable guidance. For this purpose, the
payment timing assumptions set forth in
paragraph (b)(2)(vi) and (vii) of this sec-
tion generally apply. However, in the case
of an arrangement subject to §1.7872–15,
to the extent the assumptions set forth
in paragraph (b)(2)(vi) and (vii) of this
section conflict with the provisions of
§1.7872–15, the provisions of §1.7872–15
apply, and the conflicting assumptions set
forth in paragraph (b)(2)(vi) and (vii) of
this section do not apply. In either case, for
purposes of determining the total amount
deferred under the plan for the taxable
year, the benefits under the split-dollar life
insurance arrangement are included only
to the extent that the right to such benefits
constitutes a right todeferred compensa-
tion under §1.409A–1(b).
(6)Stock rights. If a stock right has
not been exercised during the service re-
cipient’s taxable year, and remains out-
standing as of the last day of the service
provider’s taxable year for which the to-
tal amount deferred is being calculated,
the total amount deferred under the stock
right for such taxable year is the excess
of the fair market value of the underly-
ing stock on the last day of the service
provider’s taxable year (determined in ac-
cordance with §1.409A–1(b)(5)(iv)) over
the sum of the stock right’s exercise price
plus any amount paid for the stock right.
If a stock right has been exercised dur-
ing the service provider’s taxable year, the
payment amount for purposes of calculat-
ing the total amount deferred for the tax-
able year under the stock right is the ex-
cess of the fair market value of the under-
lying stock (as determined in accordance
with §1.409A–1(b)(5)(iv)) on the date of
exercise over the sum of the exercise price
of the stock right and any amount paid for
the stock right.
(7)Anti-abuse provision.TheCommis-
sioner may disregard all or part of the rules
of paragraphs (b)(2) through (b)(6) of this
section or all or part of the plan’s terms if
the Commissioner determines based on all
of the facts and circumstances that the plan
terms have been established to eliminate or
minimize the total amount deferred under
the plan determined in accordance with the
rules of paragraphs (b)(2) through (b)(6) of
this section and if the rules of paragraphs
(b)(2) through (b)(6) of this section were
applied or such plan terms were given ef-
fect, the total amount deferred would not
reasonably reflect the present value of the
right. For example, if a plan provides that a
deferred amount is payable upon a separa-
tion from service but also contains a provi-
sion that the amount will be forfeited upon
a separation from service occurring on the
last day of the service provider’s taxable
year (so that the application of paragraph
(b)(2)(vii)(A) of this section treating the
service provider as separating from service
on the last day of the taxable year for pur-
poses of determining the timing of the pay-
ment in calculating the total amount de-
ferred would result in a zero amount de-
ferred), the latter provision will be disre-
garded.
(c)Additional 20 percent tax under sec-
tion 409A(a)(1)(B)(i)(II). With respect to
anamountrequiredtobeincludedinin-
come under section 409A(a) for a taxable
year, the amount is subject to an addi-
tional income tax equal to 20 percent of the
amount required to be included in income
under section 409A(a).
(d)Premium interest tax under section
409A(a)(1)(B)(i)(I)—(1)In general.With
respect to an amount required to be in-
cluded in income under section 409A(a)
for a taxable year, the amount is subject
to an additional income tax equal to the
amount of interest at the underpayment
rate plus one percentage point on the un-
derpayments that would have occurred had
the deferred compensation been includible
in the service provider’s gross income for
the taxable year in which first deferred or,
if later, the first taxable year in which such
deferred compensation is not subject to a
substantial risk of forfeiture. The amount
required to be allocated to determine the
additional tax described in this paragraph
(d) is the amount required to be included in
income under section 409A(a) for the tax-
able year, regardless of whether additional
amounts were deferred under the plan in
previous years.
(2)Identification of taxable year
deferred amount was first deferred or
vested—(i)Method of identification.The
following method is applied for purposes
of determining the taxable year or years in
whichanamountrequiredtobeincluded
in income under section 409A(a) was first
2008–51 I.R.B.1345December 22, 2008

deferred and not subject to a substantial
risk of forfeiture.
(A) For each taxable year preceding the
taxable year for which the deferred amount
is includible in income (the current tax-
able year) in which the service provider
had an amount deferred under the plan that
was not subject to a substantial risk of for-
feiture (vested), ending with the later of
the first taxable year in which the service
provider had no vested amount deferred or
the first taxable year beginning after De-
cember 31, 2004, calculate the vested total
amount deferred for such year. For each
year, include any deferred amount that was
previously included in income under para-
graph (a)(3) of this section but has not been
paid, but exclude any amount paid to (or on
behalf of) the service provider during such
taxable year.
(B) Identify any payments made under
the plan to (or on behalf of) the service
provider for each taxable year identified in
paragraph (d)(2)(i)(A) of this section.
(C) Identify any deemed net invest-
ment losses or other net decreases in the
amount deferred (other than as a result
of a payment) applicable to amounts that
are vested for the current taxable year and
each preceding taxable year identified in
paragraph (d)(2)(i)(A) of this section.
(D) Starting with the first taxable year
during which there was a payment iden-
tified under paragraph (d)(2)(i)(B) of this
section or a loss identified under paragraph
(d)(2)(i)(C) of this section (or both), sub-
tract the total payments and loss for such
taxable year from the amount determined
under paragraph (d)(2)(i)(A) of this sec-
tion for the earliest taxable year before
such year in which there is such an amount,
and from the amount determined under
paragraph (d)(2)(i)(A) of this section for
each subsequent taxable year ending be-
fore the taxable year in which the payment
was made or the loss incurred. Do not re-
duce any taxable year-end balance below
zero.
(E) Repeat this process for each sub-
sequent taxable year during which there
was a payment identified under paragraph
(d)(2)(i)(B) of this section or a loss iden-
tified under paragraph (d)(2)(i)(C) of this
section (or both).
(F) For each taxable year identified in
paragraph (d)(2)(i)(A) of this section, de-
termine the excess (if any) of the remain-
ing amount deferred for the taxable year
over the remaining amount deferred for the
previous taxable year. Treat the amount
deferred in taxable years beginning before
January 1, 2005 as zero.
(G) Determine how much of the total
amount deferred for the current taxable
year was previously included in income in
accordance with paragraph (a)(3) of this
section.
(H) Subtract the amount determined
in paragraph (d)(2)(i)(G) of this section
from the excess amount determined in
paragraph (d)(2)(i)(F) of this section for
the earliest taxable year in which there is
any such excess amount, but do not reduce
the balance below zero. If the amount de-
termined in paragraph (d)(2)(i)(G) of this
section exceeds the amount determined
in paragraph (d)(2)(i)(F) of this section
for that earliest taxable year, subtract the
excess from the amount determined in
paragraph (d)(2)(i)(F) of this section for
the next succeeding taxable year, but do
not reduce the balance below zero. Re-
peat this process until the excess has been
reduced to zero. The balance remaining
with respect to each taxable year identified
in paragraph (d)(2)(i)(A) of this section
is the portion of the amount includible
in income under section 409A(a) in the
current taxable year that was first deferred
and vested in that taxable year.
(ii)Examples. The following exam-
ples illustrate the provisions of paragraph
(d)(2) of this section. In all of the follow-
ing examples, the service provider is an
individual taxpayer with a calendar year
taxable year who elects to defer a por-
tion of the bonus that would otherwise be
payable to the service provider in each of
Year 1 through Year 4. All amounts de-
ferred are deferred under the same plan,
and no amount deferred under the plan is
ever subject to a substantial risk of forfei-
ture. The plan does not fail to meet the re-
quirements of section 409A(a) in any year
prior to Year 4, and no amounts deferred
under the plan are otherwise includible in
income until Year 4,except for payments
actually made to the service provider. The
service provider had no amount deferred
under the plan prior to Year 1. The plan
fails to meet the requirements of section
409A(a) in Year 4. The examples read as
follows:
Example 1.
Year 1Year 2Year 3Year 4
Opening Total Amount0110
275495
Bonus Deferral100
150
200
250
Net Gains (Losses)10
15
20
25
Payments
0000
Closing Total Amount110
275495
770
(i) The amount required to be included in income
under section 409A is 770. To calculate the premium
interest tax, the 770 must be allocated to the year
or years in which the amount was first deferred and
vested.
(ii)Step A. Identification of vested total amount
deferred excluding payments and including deferred
amounts previously included in income.
Year 1Year 2Year 3
110
275495
December 22, 200813462008–51 I.R.B.

(iii)Step B. Identification of any payments for
each year other than Year 4.
Year 1Year 2Year 3
000
(iv)Step C. Identification of any other decreases
attributable to vested amounts.
Year 1Year 2Year 3Year 4
0000
(v)Steps D and E. Subtraction of payments and
decreases from amounts deferred.
Year 1Year 2Year 3
110
275495
-0-0-0
110
275495
(vi) Step F. Subtraction of previous year total
from each year’s total.
Year 1Year 2Year 3
110
275495
-0-110
-275
110
165
220
(vii) Because no amount was previously included
in income, Step G does not apply. Accordingly, the
770 is allocated such that 110 is treated as first de-
ferred and vested in Year 1, 165 in Year 2, and 220
in Year 3. The remainder (275) is treated as first de-
ferred in Year 4, but is not required to be allocated for
purposes of the premium interest tax because there is
no hypothetical underpayment for such year.
Example 2.
Year 1Year 2Year 3Year 4
Opening Total Amount0110
235365
Bonus Defer
ral
100
150
200
250
Net Gains (Losses)10
(25)
(30)
25
Payments
00(40)
(50)
Closing Total Amount110
235365590
(i) The amount that is includible in income under
section 409A(a) for Year 4 is the closing total amount
(590), plus the amounts paid during Year 4 that were
includible in income (50) or 640. To calculate the
premium interest tax, the 640 must be allocated to the
year or years in which the amountwasfirstdeferred
and vested.
(ii)Step A. Identification of vested total amount
deferred excluding payments and including deferred
amounts previously included in income.
Year 1Year 2Year 3
110
235365
(iii)Step B. Identification of any payments for
each year other than Year 4
Year 1Year 2Year 3
00(40)
2008–51 I.R.B.1347December 22, 2008

(iv)Step C. Identification of any other decreases
attributable to vested amounts
Year 1Year 2Year 3Year 4
0(25)(30)0
(v)Steps D and E. Subtraction of payments and
decreases from amounts deferred
Year 1Year 2Year 3
110
235365
-25(Year 2)
-40(Year 3)
-40(Year 3)-30(Year 3)
-30(Year 3)
15165365
(vi)Step F. Subtraction of previous year total
from each year’s total.
Year 1Year 2Year 3
15165365
-0
-15-165
15150
200
(vii) Because no amount was previously included
in income, Step G does not apply. Accordingly, the
640 is allocated such that 15 is treated as first deferred
and vested in Year 1, 150 in Year 2, and 200 in Year
3. The remaining amount includible in income under
section 409A for Year 4 (275) is treated as first de-
ferred in Year 4, but is not required to be allocated for
purposes of the premium interest tax because there is
no hypothetical underpayment for Year 4.
Example 3. (i) The facts are the same as inExam-
ple 2except 125 was previously included in income
under paragraph (a)(3) of this section. Accordingly,
of the 590 closing total amount for Year 4 plus the 50
payment during Year 4, or 640, only 515 (640 - 125)
must be included in income under section 409A(a).
To calculate the premium interest tax, the 125 must
be allocated to the year or years in which such amount
was first deferred.
(ii)Step G. Allocation of amounts previously in-
cluded in income.
Year 1Year 2Year 3
15150
200
-15
-110-0
040200
(iii) Accordingly, for purposes of calculating the
p
remium interest tax, the 125 previously included in
income is allocated so that of the 515 includible in
income under section 409A(a), 0 is treated as first
d
eferred and vested in Year 1, 40 in Year 2, and 200
in Year 3.
(3)Calculation of hypothetical under-
payment for the taxable year during which
a deferred amount was first deferred and
vested—(i)Calculation method. The hy-
pothetical underpayment for a taxable year
is determined by treating as an additional
cash payment of compensation to the ser-
vice provider for such taxable year, the
amount determined pursuant to paragraph
(d)(2) of this section to be the portion of
the amount includible in income under
section 409A(a) that was first deferred
and vested during such taxable year. The
hypothetical underpayment is calculated
based on the service provider’s taxable
income, credits, filing status, and other
tax information for the year, based on the
service provider’s original return filed for
such year, as adjusted by any examination
for such year or any amended return the
service provider filed for such year that
was accepted by the Commissioner. The
hypothetical underpayment must reflect
the effect that such additional compen-
sation would have had on the service
provider’s Federal income tax liability
for such year, including the continued
availability of any deductions taken, and
the use of any carryovers such as carry-
over losses. For purposes of calculating
a hypothetical underpayment in a subse-
quent year (whether or not a portion of the
amount includible in income under section
409A(a) was first deferred and vested in
the subsequent year), any changes to the
service provider’s Federal income tax lia-
bility for the subsequent year that would
have occurred if the portion of the amount
that was first deferred and vested during
the previous taxable year had been in-
cluded in the service provider’s income
for the previous year must be taken into
account. Assumptions not based on the
service provider’s taxable income, credits,
filing status, and other tax information for
the year, based on the service provider’s
original return for such year, as adjusted
by any examination for such year or any
amended return the service provider filed
for such year that was accepted by the
Commissioner, may not be applied. For
example, the service provider may not
December 22, 200813482008–51 I.R.B.

assume that some of the additional com-
pensation would have been deferred under
the terms of a qualified plan. If the service
provider’s Federal income tax liability
for the taxable year in which an amount
required to be included in income under
section 409A(a) was first deferred and
vested is adjusted(for example, by an
amended return or IRS examination), and
the adjustment affects the amount of the
hypothetical underpayment, the service
provider must recalculate the hypothetical
underpayment and adjust the amount of
premium interest tax due with respect to
such inclusion in income under section
409A(a), as appropriate.
(ii)Examples. The following exam-
ples illustrate the provisions of paragraph
(d)(3)(i) of this section. In all of the
following examples, Employee N is an
individual taxpayer with a calendar year
taxable year. For the year 2020, Em-
ployee N has a total amount deferred of
$100,000 which is includible in income
under section 409A(a). For purposes of
determining the premium interest tax, as-
sume that $30,000 was first deferred and
vested in 2018, $35,000 was first deferred
and vested in 2019, and $35,000 was first
deferred and vested in 2020. The first year
that Employee N had a vested deferred
amount under the plan was 2018. The
examples read as follows:
Example 1. For the taxable years 2018 and 2019,
Employee N has no carryover losses or other items
a change in which could affect the adjusted gross in-
come for a subsequent taxable year. Employee N de-
termines the hypothetical underpayment for 2018 by
assuming an additional cash compensation payment
of $30,000 for 2018, and determining the hypotheti-
cal underpayment of Federal income tax that would
result. Employee N determines the hypothetical un-
derpayment for 2019 by assuming an additional cash
compensation payment of $35,000 in 2019, and de-
termining the hypothetical underpayment of Federal
income tax for 2019 that would result. There is no
hypothetical underpayment with respect to hypothet-
ical income in 2020 because the tax payment would
not have been due until 2021. Therefore, Employee
N is not required to determine a hypothetical under-
payment for 2020.
Example 2. ThefactsarethesameasinExam-
ple 1, except that in 2018, Employee N had an ex-
cess charitable contribution the deduction of which
was not permitted under section 170(b), and which
was carried over to subsequent taxable years under
section 170(d). For purposes of determining the hy-
pothetical underpayment for 2018, Employee N uses
the charitable contribution deduction that otherwise
would have been available if the $30,000 compen-
sation payment had actually been made. Employee
N must then calculate the hypothetical underpayment
for all subsequent years in a manner that eliminates
the portion of any carryovers of excess contributions
under section 170(d) related to the charitable contri-
bution in 2018 that would not have been available in
such subsequent years as a result of having been de-
ducted in 2018.
Example 3. The facts are the same as inExample
2, except that in 2021 the IRS examines Employee
N’s 2018 return and determines that Employee N had
$20,000 in unreported income for that year. In ad-
dition to paying the tax deficiency owed for 2018,
Employee N must redetermine the hypothetical un-
derpayment for 2018 and recalculate the premium in-
terest tax owed for 2020.
(4)Calculation of hypothetical pre-
mium underpayment interest—(i)Calcu-
lation method. The amount of hypothetical
premium underpayment interest is deter-
mined for any taxable year by applying
the applicable rate of interest under sec-
tion 6621 plus one percentage point to
determine the underpayment interest un-
der section 6601 that would be due for
such underpayment as of the last day of
the taxable year for which the amount
deferred is includible in income under sec-
tion 409A(a). The amount of additional
income tax under paragraph (d)(2) of this
section with respect to an amount required
to be included in income under section
409A(a) is the sum of all of the hypothet-
ical premium underpayment interest for
all years in which there was determined a
hypotheticalunderpayment.
(ii)Examples. The following examples
illustrate the provisions of this paragraph
(d)(4). In each of these examples, the
service provider is an individual taxpayer
with a calendar year taxable year. At all
times the total amount deferred under the
nonqualified deferred compensation plan
is not subject to a substantial risk of for-
feiture. The examples read as follows:
Example 1. Employee O has a total amount
deferred under a nonqualified deferred compensa-
tion plan for 2010 of $100,000. The entire deferred
amount was first deferred in 2006. For purposes of
calculating the hypothetical premium underpayment
interest tax, Employee O first must determine the
hypothetical underpayment for taxable years 2006
through 2009 under the rules of paragraph (d)(3) of
this section. Then Employee O must determine the
underpayment interest under section 6601 that would
have accrued, calculated using the applicable under-
payment interest rate under section 6621 increased
by one percentage point, applied through December
31, 2010. That amount is the premium interest tax
that is due for 2010.
Example 2. Employee P has a total amount de-
ferred under a nonqualified deferred compensation
plan for 2010 of $100,000. $60,000 of that deferred
amount was first deferred in 2006. $30,000 of that
amount was first deferred in 2008. $10,000 of that
amount was first deferred in 2010. For purposes of
calculating the hypothetical premium underpayment
interest tax, Employee P first must determine the
hypothetical underpayment for taxable years 2006
through 2009 under the rules of paragraph (d)(3) of
this section applying $60,000 of hypothetical addi-
tional compensation for 2006, and applying $30,000
of hypothetical additional compensation for 2008.
The $10,000 of hypothetical additional compensation
in 2010 would not result in a hypothetical underpay-
ment because the Federal income tax applicable to
that hypothetical additional compensation would not
yet be due. Second, Employee P must determine the
underpayment interest under section 6601 that would
have accrued, calculated using the applicable under-
payment interest rate under section 6621 increased
by one percentage point, applied through December
31, 2010, for both the hypothetical underpayment
occurring in 2006 and the hypothetical underpayment
occurring in 2008. The sum of those two amounts is
the premium interest tax that is due for 2010.
(e)Amounts includible in income under
section 409A(b)[Reserved].
(f)Application of amounts included in
income under section 409A to payments
of amounts deferred—(1)In general. Sec-
tion 409A(c) provides that any amount
included in gross income under section
409A is not required to be included in
gross income under any other provision of
this chapter or any other rule of law later
than the time provided in this section. An
amount included in income under section
409A that has neither been paid in the
taxable year the amount was included in
income under section 409A nor served as
the basis for a deduction under paragraph
(g) of this section is allocated to the first
payment of an amount deferred under the
plan in any year subsequent to the year
the amount was included in income under
section 409A. To the extent the amount
included in income under section 409A
exceeds such payment, the excess is allo-
cated to the next payment of an amount
deferred under the plan. This process is
repeated until the entire amount included
in income under section 409A has been
paid or the service provider has become
entitled to a deduction under paragraph (g)
of this section.
(2)Application of the plan aggrega-
tion rules. The plan aggregation rules of
§1.409A–1(c)(2) apply to the allocation
of amounts previously included in income
under section 409A to payments made
under the plan. Accordingly, references
to an amount deferred under a plan, or
a payment of an amount deferred under
a plan, refer to an amount deferred or a
payment made under all arrangements in
which a service provider participates that
2008–51 I.R.B.1349December 22, 2008

together are treated as a single plan under
§1.409A–1(c)(2).
(3)Examples. The following exam-
ples illustrate the provisions of this sec-
tion. In each of these examples, the service
provider is an individual taxpayer with a
calendar year taxable year. Each service
provider has a total amount deferred un-
der a nonqualified deferred compensation
plan of $0 for 2010, a total amount de-
ferred under the plan of $100,000 for 2011,
a total amount deferred under the plan of
$250,000 for 2012, and a total amount de-
ferred under the plan of $400,000 for 2013.
At all times the total amount deferred un-
der the plan is not subject to a substantial
risk of forfeiture. During 2011, the plan
failstocomplywithsection409A(a)and
each service provider includes $100,000
in income under section 409A. Except as
otherwise provided in the following exam-
ples, the service provider does not receive
any payments of amounts deferred under
the plan. The examples read as follows:
Example 1. During 2012, Employee Q receives
a $10,000 payment under the plan. During 2013,
Employee Q receives a $150,000 payment under the
plan. For 2012, $10,000 of the $100,000 included
in income under section 409A(a) is allocated under
paragraph (f)(1) of this section to the $10,000 pay-
ment, so that no amount is includible in gross income
as a result of such payment and Employee Q retains
$90,000 of amounts previously included in income
under the plan to allocate to future plan payments.
For 2013, the remaining $90,000 included in income
under section 409A(a) is allocated to the $150,000
payment, so that only $60,000 is includible in income
as a result of such payment.
Example 2. During 2012, Employee R receives a
$10,000 payment under the plan. During 2014, Em-
ployee R receives a $50,000 payment, equaling the
entire amount deferred under the plan. For 2012,
$10,000 of the $100,000 previously included in in-
come is allocated pursuant to paragraph (f)(1) of this
section to the $10,000 payment, so that no amount is
includible in gross income as a result of such pay-
ment. For 2014, $50,000 of the $90,000 remain-
ing amount previously included in income is allo-
cated pursuant to paragraph (f)(1) of this section to
the $50,000 payment, so that no amount is includible
in gross income as a result of such payment. Pro-
vided that the requirements of paragraph (g) of this
section are otherwise met, Employee R is entitled to
a deduction for 2014 equal to the remaining amount
($40,000) that was previously included in income un-
der section 409A(a) that has not been allocated to a
payment under the plan.
(g)Forfeiture or other permanent loss
of right to deferred compensation—(1)
Availability of deduction to the service
provider. If a service provider has in-
cluded a deferred amount in income under
section 409A, but has not actually received
payment of such deferred amount or oth-
erwise allocated the amount included in
income under paragraph (f) of this section,
the service provider is entitled to a deduc-
tion for the taxable year in which the right
to that amount of deferred compensation
is permanently forfeited under the plan’s
terms or the right to the payment of the
amount is otherwise permanently lost. The
deduction to which the service provider
is entitled equals the deferred amount in-
cluded in income under section 409A in
a previous year, less any portion of such
deferred amount previously included in
income under section 409A that was allo-
cated under paragraph (f) of this section
to amounts paid under the plan, including
any deferred amount paid in the year the
right to any remaining deferred compensa-
tion is permanently forfeited or otherwise
lost. For this purpose, a mere diminution
in the deferred amount under the plan due
to deemed investment loss, actuarial re-
duction, or other decrease in the amount
deferred is not treated as a permanent for-
feiture or loss of the right if the service
provider retains the right to an amount
deferred under the plan (whether or not
such right is subject to a substantial risk of
forfeiture as defined in §1.409A–1(d)). In
addition, a deferred amount is not treated
as permanently forfeited or otherwise lost
if the obligation to make the payment of
such deferred amount is substituted for
another deferred amount or obligation to
make a payment in a future year. However,
a deferred amount is treated as perma-
nently lost if the service provider’s right
to receive the payment of the deferred
amount becomes whollyworthless during
the taxable year. Whether the right to the
payment of a deferred amount has become
wholly worthless is determined based on
all the facts and circumstances existing
as of the last day of the relevant service
provider taxable year.
(2)Application of the plan aggrega-
tion rules. For purposes of determining
whether the right to a deferred amount
is permanently forfeited or otherwise lost,
the plan aggregation rules of §1.409A–1(c)
apply. Accordingly, ifthe right to an iden-
tified deferred amount under a plan is per-
manently forfeited or otherwise lost, but an
additional amount remains deferred under
the plan, the service provider is not entitled
to a deduction.
(3)Examples. The following examples
illustrate the provisions of this paragraph
(g). In each example, the service provider
is an individual taxpayer who has a calen-
dar year taxable year and the service recip-
ient does not experience bankruptcy at any
time or otherwise discharge any obligation
to make a payment of a deferred amount,
except as expressly provided in the exam-
ple. The examples read as follows:
Example 1. For 2010, Employee S has a total
amount deferred under an elective account bal-
ance plan of $1,000,000. The plan fails to meet
the requirements of section 409A(a) during 2010
and Employee S includes $1,000,000 in income
under section 409A(a) for the year 2010. In 2011,
Employee S experiences investment losses but no
payments before July 1, 2011, such that Employee S’s
account balance under the plan is $500,000. On July
1, 2011, Employee S separates from service and re-
ceives a $500,000 payment equal to the entire amount
deferred under the plan, and retains no other right
to deferred compensation under the plan (including
all arrangementsaggregated with the arrangement
under which the payment was made). For 2011, Em-
ployee S is entitled to deduct $500,000 (which is the
amount Employee S previously included in income
under section 409A(a) ($1,000,000) less the amount
actually received by Employee S ($500,000)).
Example 2. For 2010, Employee T has a total
amount deferred under an elective account balance
plan of $1,000,000. The plan fails to meet the require-
ments of section 409A(a) for 2010 and Employee T
includes $1,000,000 in income under section 409A(a)
for 2010. For 2011, Employee T has a total amount
deferred under the plan of $500,000, due solely to the
deemed investment losses attributable to Employee
T’s account balance (with no payments being made
during 2011). Because Employee T retains the right
to an amount deferred under the plan, Employee T is
not entitled to a deduction for 2011 as a result of the
deemed investment losses.
Example 3. For 2010, Employee U has a to-
tal amount deferred under an elective account bal-
ance plan of $1,000,000. The elective account bal-
ance plan consists of one arrangement providing for
salary deferrals with an amount deferred for 2010
of $600,000, and another arrangement providing for
bonus deferrals with an amount deferred for 2010 of
$400,000. The plan fails to meet the requirements
of section 409A(a) during 2010 and Employee U in-
cludes $1,000,000 in income under section 409A(a)
for 2010. On July 1, 2011, Employee U’s account bal-
ance attributable to the salary deferral arrangement
is $500,000, the reduction of which is due solely to
deemed investment losses in 2011 and not any pay-
ments. On July 1, 2011, Employee U is paid the
$500,000 equaling the entire account balance attrib-
utable to the salary deferral arrangement. On Decem-
ber 31, 2011, Employee U has an account balance at-
tributable to the bonus deferral arrangement equal to
$300,000. Because Employee U retains an amount
deferred under the elective account balance plan, Em-
ployee U is not entitled to a deduction for 2011 as a
result of the deemed investment losses.
(h)Effective/applicability date.The
rules of this section apply to taxable years
December 22, 200813502008–51 I.R.B.

ending on or after the date of publication
of the Treasury decision adopting these
rules as final regulation in theFederal
Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on December 5,
2008, 8:45 a.m., and published in the issue of the Federal
Register for December 8, 2008, 72 F.R. 74380)
Substantiation and Reporting
Requirements for Cash
and Noncash Charitable
Contribution Deductions;
Hearing
Announcement 2008–122
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of public hearing on pro-
posed rulemaking.
SUMMARY: This document provides no-
tice of a public hearing on proposed regu-
lations (REG–140029–07, 2008–40 I.R.B.
828) relating to the substantiation and re-
porting requirements for cash and noncash
charitable contributions under section 170
of the Internal Revenue Code. The reg-
ulations reflect the enactment of provi-
sions of the American Jobs Creation Act
of 2004 and the Pension Protection Act of
2006. The regulations provide guidance
to individuals, partnerships, and corpora-
tions that make charitable contributions,
and will affect any donor claiming a de-
duction for a charitable contribution after
the date these regulations are published as
final regulations in theFederal Register.
DATES: The public hearing is being held
on Friday, January 23, 2009, at 10:00 a.m.
The IRS must receive outlines of the topics
to be discussed at the public hearing by
Tuesday, December 23, 2008.
ADDRESSES: The public hearing is being
held in the IRS Auditorium, Internal Rev-
enue Service Building, 1111 Constitution
Avenue, NW, Washington, DC 20224.
Send Submissions to CC:PA:LPD:PR
(REG–140029–07), room 5205, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand-delivered Mon-
day through Friday to CC:PA:LPD:PR
(REG–140029–07), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitu-
tion Avenue, NW, Washington, DC, or
sent electronically via the Federal eRule-
making Portal atwww.regulations.gov
(IRS-REG–140029–07).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Susan J. Kassell (202) 622–5020; concern-
ing submissions of comments, the hearing
and/or to be placed on the building access
list to attend the hearing Funmi Taylor at
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
The subject of the public hearing
is the notice of proposed rulemaking
(REG–140029–07) that was published in
theFederal Registeron Thursday, August
7, 2008 (73 FR 45908).
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing that
submitted written comments by November
5, 2008, must submit an outline of the top-
ics to be addressed and the amount of time
to be denoted to each topic (Signed origi-
nal and eight (8) copies)
A period of 10 minutes is allotted to
each person for presenting oral comments.
After the deadline for receiving out-
lines has passed, the IRS will prepare an
agenda containing the schedule of speak-
ers. Copies of the agenda will be made
available, free of charge, at the hearing or
in the Freedom of Information Reading
Room (FOIA RR) (Room 1621) which
is located at the 11
th
and Pennsylvania
Avenue, NW, entrance, 1111 constitution
Avenue, NW, Washington, DC.
Because of access restrictions, the IRS
will not admit visitors beyond the imme-
diate entrance area more than 30 minutes
before the hearing starts. For informa-
tion about having your name placed on
the building access list to attend the hear-
ing, see the “FOR FURTHER INFORMA-
TION CONTACT” section of this docu-
ment.
LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on November 26,
2008, 8:45 a.m., and published in the issue of the Federal
Register for November 28, 2008, 73 F.R. 72398)
Section 7428(c) Validation
of Certain Contributions
Made During Pendency
of Declaratory Judgment
Proceedings
Announcement 2008–123
This announcement serves notice to po-
tential donors that the organization listed
below has recently filed a timely declara-
tory judgment suit under section 7428 of
the Code, challenging revocation of its
status as an eligibledonee under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice
of revocation is published in the Internal
Revenue Bulletin and ends on the date
on which a court first determines that an
organization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1).
In the case of individual contributors,
the maximum amount of contributions
protected during this period is limited to
$1,000.00, with a husband and wife being
treated as one contributor. This protec-
tion is not extended to any individual who
was responsible, in whole or in part, for
the acts or omissions of the organization
that were the basis for the revocation.
This protection also applies (but without
limitation as to amount) to organizations
described in section 170(c)(2) which are
exempt from tax under section 501(a). If
the organization ultimately prevails in its
declaratory judgment suit, deductibility
of contributions would be subject to the
normal limitations set forth under section
170.
HelpAmerica, Inc.
Montgomery Village, MD
National Credit Counseling Services, Inc.
Orlando, FL
2008–51 I.R.B.1351December 22, 2008

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
December 22, 2008i2008–51 I.R.B.

Numerical Finding List
1
Bulletins 2008–27 through 2008–51
Announcements:
2008-62, 2008-27 I.R.B.74
2008-63, 2008-28 I.R.B.114
2008-64, 2008-28 I.R.B.114
2008-65, 2008-31 I.R.B.279
2008-66, 2008-29 I.R.B.164
2008-67, 2008-29 I.R.B.164
2008-68, 2008-30 I.R.B.244
2008-69, 2008-32 I.R.B.318
2008-70, 2008-32 I.R.B.318
2008-71, 2008-32 I.R.B.321
2008-72, 2008-32 I.R.B.321
2008-73, 2008-33 I.R.B.391
2008-74, 2008-33 I.R.B.392
2008-75, 2008-33 I.R.B.392
2008-76, 2008-33 I.R.B.393
2008-77, 2008-33 I.R.B.394
2008-78, 2008-34 I.R.B.453
2008-79, 2008-35 I.R.B.568
2008-80, 2008-37 I.R.B.706
2008-81, 2008-37 I.R.B.706
2008-82, 2008-37 I.R.B.708
2008-83, 2008-37 I.R.B.709
2008-84, 2008-38 I.R.B.748
2008-85, 2008-38 I.R.B.749
2008-86, 2008-40 I.R.B.843
2008-87, 2008-40 I.R.B.843
2008-88, 2008-40 I.R.B.843
2008-89, 2008-40 I.R.B.844
2008-90, 2008-41 I.R.B.896
2008-91, 2008-42 I.R.B.963
2008-92, 2008-42 I.R.B.963
2008-93, 2008-41 I.R.B.896
2008-94, 2008-42 I.R.B.964
2008-95, 2008-42 I.R.B.964
2008-96, 2008-43 I.R.B.1010
2008-97, 2008-43 I.R.B.1010
2008-98, 2008-44 I.R.B.1087
2008-99, 2008-44 I.R.B.1089
2008-100, 2008-44 I.R.B.1090
2008-101, 2008-44 I.R.B.1090
2008-102, 2008-43 I.R.B.1011
2008-103, 2008-46 I.R.B.1161
2008-104, 2008-45 I.R.B.1136
2008-105, 2008-48 I.R.B.1219
2008-106, 2008-45 I.R.B.1137
2008-107, 2008-46 I.R.B.1162
2008-108, 2008-46 I.R.B.1165
2008-109, 2008-46 I.R.B.1166
2008-110, 2008-48 I.R.B.1224
2008-111, 2008-48 I.R.B.1224
2008-112, 2008-47 I.R.B.
1199
2008-113, 2008-47 I.R.B.1199
Announcements— Continued:
2008-114, 2008-48 I.R.B.1226
2008-115, 2008-48 I.R.B.1228
2008-116, 2008-48 I.R.B.1230
2008-117, 2008-49 I.R.B.1258
2008-118, 2008-49 I.R.B.1258
2008-119, 2008-50 I.R.B.1295
2008-120, 2008-50 I.R.B.1295
2008-121, 2008-50 I.R.B.1296
2008-122, 2008-51 I.R.B.1351
2008-123, 2008-51 I.R.B.1351
Court Decisions:
2087, 2008-41 I.R.B.845
Notices:
2008-55, 2008-27 I.R.B.11
2008-56, 2008-28 I.R.B.79
2008-57, 2008-28 I.R.B.80
2008-58, 2008-28 I.R.B.81
2008-59, 2008-29 I.R.B.123
2008-60, 2008-30 I.R.B.178
2008-61, 2008-30 I.R.B.180
2008-62, 2008-29 I.R.B.130
2008-63, 2008-31 I.R.B.261
2008-64, 2008-31 I.R.B.268
2008-65, 2008-30 I.R.B.182
2008-66, 2008-31 I.R.B.270
2008-67, 2008-32 I.R.B.307
2008-68, 2008-34 I.R.B.418
2008-69, 2008-34 I.R.B.419
2008-70, 2008-36 I.R.B.575
2008-71, 2008-35 I.R.B.462
2008-72, 2008-43 I.R.B.998
2008-73, 2008-38 I.R.B.717
2008-74, 2008-38 I.R.B.718
2008-75, 2008-38 I.R.B.719
2008-76, 2008-39 I.R.B.768
2008-77, 2008-40 I.R.B.814
2008-78, 2008-41 I.R.B.851
2008-79, 2008-40 I.R.B.815
2008-80, 2008-40 I.R.B.820
2008-81, 2008-41 I.R.B.852
2008-82, 2008-41 I.R.B.853
2008-83, 2008-42 I.R.B.905
2008-84, 2008-41 I.R.B.855
2008-85, 2008-42 I.R.B.905
2008-86, 2008-42 I.R.B.925
2008-87, 2008-42 I.R.B.930
2008-88, 2008-42 I.R.B.933
2008-89, 2008-43 I.R.B.999
2008-90, 2008-43 I.R.B.1000
2008-91, 2008-43 I.R.B.1001
2008-92, 2008-43 I.R.B.1001
2008-93, 2008-43 I.R.B.1002
2008-94, 2008-44 I.R.B.1070
Notices— Continued:
2008-95, 2008-44 I.R.B.1076
2008-96, 2008-44 I.R.B.1077
2008-97, 2008-44 I.R.B.1080
2008-98, 2008-44 I.R.B.1080
2008-99, 2008-47 I.R.B.1194
2008-100, 2008-44 I.R.B.1081
2008-101, 2008-44 I.R.B.1082
2008-102, 2008-45 I.R.B.1106
2008-103, 2008-46 I.R.B.1156
2008-104, 2008-51 I.R.B.1298
2008-105, 2008-48 I.R.B.1208
2008-106, 2008-49 I.R.B.1239
2008-107, 2008-50 I.R.B.1265
2008-108, 2008-50 I.R.B.1275
2008-109, 2008-50 I.R.B.1282
2008-110, 2008-51 I.R.B.1298
2008-111, 2008-51 I.R.B.1299
2008-112, 2008-51 I.R.B.1301
2008-113, 2008-51 I.R.B.1305
2008-114, 2008-51 I.R.B.1322
Proposed Regulations:
REG-209006-89, 2008-41 I.R.B.867
REG-157711-02, 2008-44 I.R.B.1087
REG-143544-04, 2008-42 I.R.B.947
REG-160868-04, 2008-45 I.R.B.1115
REG-161695-04, 2008-37 I.R.B.699
REG-164965-04, 2008-34 I.R.B.450
REG-142339-05, 2008-45 I.R.B.1116
REG-143453-05, 2008-32 I.R.B.310
REG-146895-05, 2008-37 I.R.B.700
REG-148326-05, 2008-51 I.R.B.1325
REG-155087-05, 2008-38 I.R.B.726
REG-164370-05, 2008-46 I.R.B.1157
REG-142680-06, 2008-35 I.R.B.565
REG-156779-06, 2008-46 I.R.B.1160
REG-120476-07, 2008-36 I.R.B.679
REG-120844-07, 2008-39 I.R.B.770
REG-128841-07, 2008-45 I.R.B.1124
REG-129243-07, 2008-27 I.R.B.32
REG-138355-07, 2008-32 I.R.B.311
REG-140029-07, 2008-40 I.R.B.828
REG-142040-07, 2008-34 I.R.B.451
REG-142333-07, 2008-43 I.R.B.1008
REG-149404-07, 2008-40 I.R.B.839
REG-149405-07, 2008-27 I.R.B.73
REG-100464-08, 2008-32 I.R.B.313
REG-101258-08, 2008-28 I.R.B.111
REG-102122-08, 2008-31 I.R.B.278
REG-102822-08, 2008-38 I.R.B.744
REG-103146-08, 2008-37 I.R.B.701
REG-106251-08, 2008-39 I.R.B.774
REG-107318-08, 2008-45 I.R.B.1131
REG-115457-08, 2008-33 I.R.B.390
REG-118327-08, 2008-48 I.R.B.1218
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin
2008–26, dated June 30, 2008.
2008–51 I.R.B.iiDecember 22, 2008

Proposed Regulations— Continued:
REG-121698-08, 2008-29 I.R.B.163
Revenue Procedures:
2008-32, 2008-28 I.R.B.82
2008-33, 2008-28 I.R.B.93
2008-34, 2008-27 I.R.B.13
2008-35, 2008-29 I.R.B.132
2008-36, 2008-33 I.R.B.340
2008-37, 2008-29 I.R.B.137
2008-38, 2008-29 I.R.B.139
2008-39, 2008-29 I.R.B.143
2008-40, 2008-29 I.R.B.151
2008-41, 2008-29 I.R.B.155
2008-42, 2008-29 I.R.B.160
2008-43, 2008-30 I.R.B.186
2008-44, 2008-30 I.R.B.187
2008-45, 2008-30 I.R.B.224
2008-46, 2008-30 I.R.B.238
2008-47, 2008-31 I.R.B.272
2008-48, 2008-36 I.R.B.586
2008-49, 2008-34 I.R.B.423
2008-50, 2008-35 I.R.B.464
2008-51, 2008-35 I.R.B.562
2008-52, 2008-36 I.R.B.587
2008-53, 2008-36 I.R.B.678
2008-54, 2008-38 I.R.B.722
2008-55, 2008-39 I.R.B.768
2008-56, 2008-40 I.R.B.826
2008-57, 2008-41 I.R.B.855
2008-58, 2008-41 I.R.B.856
2008-59, 2008-41 I.R.B.857
2008-60, 2008-43 I.R.B.1006
2008-61, 2008-42 I.R.B.934
2008-62, 2008-42 I.R.B.935
2008-63, 2008-42 I.R.B.946
2008-64, 2008-47 I.R.B.1195
2008-65, 2008-44 I.R.B.1082
2008-66, 2008-45 I.R.B.1107
2008-67, 2008-48 I.R.B.1211
2008-69, 2008-48 I.R.B.1217
2008-70, 2008-49 I.R.B.1240
2008-71, 2008-49 I.R.B.1251
2008-72, 2008-50 I.R.B.1286
Revenue Rulings:
2008-32, 2008-27 I.R.B.6
2008-33, 2008-27 I.R.B.8
2008-34, 2008-28 I.R.B.76
2008-35, 2008-29 I.R.B.116
2008-36, 2008-30 I.R.B.165
2008-37, 2008-28 I.R.B.77
2008-38, 2008-31 I.R.B.249
2008-39, 2008-31 I.R.B.252
2008-40, 2008-30 I.R.B.166
2008-41, 2008-30 I.R.B.170
2008-42, 2008-30 I.R.B.175
2008-43, 2008-31 I.R.B.258
Revenue Rulings— Continued:
2008-44, 2008-32 I.R.B.292
2008-45, 2008-34 I.R.B.403
2008-46, 2008-36 I.R.B.572
2008-47, 2008-39 I.R.B.760
2008-48, 2008-38 I.R.B.713
2008-49, 2008-40 I.R.B.811
2008-50, 2008-45 I.R.B.1098
2008-51, 2008-47 I.R.B.1171
2008-52, 2008-49 I.R.B.1233
2008-53, 2008-49 I.R.B.1231
Social Security Contribution and Benefit
Base; Domestic Employee Coverage
Threshold:
2008-103, 2008-46 I.R.B.1156
Treasury Decisions:
9401, 2008-27 I.R.B.1
9402, 2008-31 I.R.B.254
9403, 2008-32 I.R.B.285
9404, 2008-32 I.R.B.280
9405, 2008-32 I.R.B.293
9406, 2008-32 I.R.B.287
9407, 2008-33 I.R.B.330
9408, 2008-33 I.R.B.323
9409, 2008-29 I.R.B.118
9410, 2008-34 I.R.B.414
9411, 2008-34 I.R.B.398
9412, 2008-37 I.R.B.687
9413, 2008-34 I.R.B.404
9414, 2008-35 I.R.B.454
9415, 2008-36 I.R.B.570
9416, 2008-46 I.R.B.1142
9417, 2008-37 I.R.B.693
9418, 2008-38 I.R.B.713
9419, 2008-40 I.R.B.790
9420, 2008-39 I.R.B.750
9421, 2008-39 I.R.B.755
9422, 2008-42 I.R.B.898
9423, 2008-43 I.R.B.966
9424, 2008-44 I.R.B.1012
9425, 2008-45 I.R.B.1100
9426, 2008-46 I.R.B.1153
9427, 2008-47 I.R.B.1179
9428, 2008-47 I.R.B.1174
9429, 2008-47 I.R.B.1167
9430, 2008-48 I.R.B.1205
9431, 2008-49 I.R.B.1235
9432, 2008-49 I.R.B.1236
9433, 2008-50 I.R.B.1263
December 22, 2008iii2008–51 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–27 through 2008–51
Announcements:
2008-19
Superseded by
Ann. 2008-95, 2008-42 I.R.B.964
2008-63
Superseded by
Rev. Proc. 2008-72, 2008-50 I.R.B.1286
2008-64
Corrected by
Ann. 2008-71, 2008-32 I.R.B.321
2008-72
Corrected by
Ann. 2008-78, 2008-34 I.R.B.453
Notices:
88-80
Modified by
Notice 2008-79, 2008-40 I.R.B.815
99-48
Superseded by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2000-9
Obsoleted by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
2001-16
Clarified by
Notice 2008-111, 2008-51 I.R.B.1299
2004-2
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2004-50
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2005-11
Superseded by
T.D. 9425, 2008-45 I.R.B.1100
2005-91
Obsoleted by
T.D. 9422, 2008-42 I.R.B.898
2006-88
Modified and superseded by
Notice 2008-60, 2008-30 I.R.B.178
2006-100
Modified by
Notice 2008-113, 2008-51 I.R.B.1305
2007-2
Modified by
Notice 2008-104, 2008-51 I.R.B.1298
Notices— Continued:
2007-22
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2007-36
Clarified, modified, and amplified by
Rev. Proc. 2008-54, 2008-38 I.R.B.722
2007-52
Updated and amplified by
Notice 2008-96, 2008-44 I.R.B.1077
2007-53
Updated by
Notice 2008-97, 2008-44 I.R.B.1080
2007-89
Modified by
Notice 2008-113, 2008-51 I.R.B.1305
2007-100
Obsoleted by
Notice 2008-113, 2008-51 I.R.B.1305
2008-20
Superseded by
Notice 2008-111, 2008-51 I.R.B.1299
2008-41
Amended and supplemented by
Notice 2008-88, 2008-42 I.R.B.933
Proposed Regulations:
REG-161695-04
Corrected by
Ann. 2008-92, 2008-42 I.R.B.963
REG-143453-05
Hearing cancelled by
Ann. 2008-96, 2008-43 I.R.B.1010
REG-155087-05
Hearing scheduled by
Ann. 2008-117, 2008-49 I.R.B.1258
REG-129243-07
Corrected by
Ann. 2008-75, 2008-33 I.R.B.392
REG-140029-07
Hearing scheduled by
Ann. 2008-122, 2008-51 I.R.B.1351
REG-151135-07
Hearing scheduled by
Ann. 2008-64, 2008-28 I.R.B.114
REG-101258-08
Corrected by
Ann. 2008-73, 2008-33 I.R.B.391
REG-102822-08
Hearing cancelled by
Ann. 2008-116, 2008-48 I.R.B.1230
Proposed Regulations— Continued:
REG-103146-08
Hearing scheduled by
Ann. 2008-102, 2008-43 I.R.B.1011
REG-106251-08
Hearing scheduled by
Ann. 2008-121, 2008-50 I.R.B.1296
REG-115457-08
Hearing scheduled by
Ann. 2008-108, 2008-46 I.R.B.1165
Revenue Procedures:
92-25
Superseded by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
92-83
Obsoleted by
Rev. Proc. 2008-37, 2008-29 I.R.B.137
2001-10
Section 6.02(1)(a) modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2001-42
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2002-9
Clarified, modified, amplified, and superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
Modified and amplified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
2002-28
Section 7.02(1)(a) modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2002-44
Modified by
Ann. 2008-111, 2008-48 I.R.B.1224
2002-64
Superseded by
Rev. Proc. 2008-55, 2008-39 I.R.B.768
2004-44
Superseded by
Rev. Proc. 2008-67, 2008-48 I.R.B.1211
2005-29
Superseded by
Rev. Proc. 2008-49, 2008-34 I.R.B.423
2006-27
Modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2006-29
Superseded by
Rev. Proc. 2008-34, 2008-27 I.R.B.13
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008.
2008–51 I.R.B.ivDecember 22, 2008

Revenue Procedures— Continued:
2006-34
Superseded by
Rev. Proc. 2008-44, 2008-30 I.R.B.187
2006-44
Modified by
Ann. 2008-111, 2008-48 I.R.B.1224
2007-9
Modified by
Rev. Proc. 2008-70, 2008-49 I.R.B.1240
2007-14
Superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2007-19
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2007-37
Updated by
Rev. Proc. 2008-62, 2008-42 I.R.B.935
2007-42
Superseded by
Rev. Proc. 2008-32, 2008-28 I.R.B.82
2007-43
Superseded by
Rev. Proc. 2008-33, 2008-28 I.R.B.93
2007-44
Modified by
Rev. Proc. 2008-56, 2008-40 I.R.B.826
2007-49
Section 3 modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2007-50
Superseded by
Rev. Proc. 2008-36, 2008-33 I.R.B.340
2007-63
Superseded by
Rev. Proc. 2008-59, 2008-41 I.R.B.857
2007-66
Modified and superseded by
Rev. Proc. 2008-54, 2008-38 I.R.B.722
2007-70
Superseded by
Rev. Proc. 2008-72, 2008-50 I.R.B.1286
Modified by
Ann. 2008-63, 2008-28 I.R.B.114
2007-72
Amplified and superseded by
Rev. Proc. 2008-47, 2008-31 I.R.B.272
2008-3
Modified and amplified by
Rev. Proc. 2008-61, 2008-42 I.R.B.934
Revenue Procedures— Continued:
2008-4
Modified by
Rev. Proc. 2008-67, 2008-48 I.R.B.1211
2008-10
Modified by
Rev. Proc. 2008-70, 2008-49 I.R.B.1240
2008-12
Modified and superseded by
Rev. Proc. 2008-35, 2008-29 I.R.B.132
2008-43
Modified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2008-44
Clarified by
Ann. 2008-119, 2008-50 I.R.B.1295
2008-52
Modified by
Ann. 2008-84, 2008-38 I.R.B.748
Revenue Rulings:
67-213
Amplified by
Rev. Rul. 2008-40, 2008-30 I.R.B.166
71-234
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
76-273
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
77-480
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
82-105
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
91-17
Amplified by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
Rev. Proc. 2008-42, 2008-29 I.R.B.160
Superseded in part by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2005-6
Amplified by
Rev. Proc. 2008-38, 2008-29 I.R.B.139
2006-57
Modified by
Notice 2008-74, 2008-38 I.R.B.718
2008-3
Supplemented and superseded by
Rev. Rul. 2008-52, 2008-49 I.R.B.1233
2008-12
Amplified by
Rev. Rul. 2008-38, 2008-31 I.R.B.249
Revenue Rulings— Continued:
Clarified by
Ann. 2008-65, 2008-31 I.R.B.279
Treasury Decisions:
8073
Corrected by
Ann. 2008-99, 2008-44 I.R.B.1089
9391
Corrected by
Ann. 2008-74, 2008-33 I.R.B.392
9417
Corrected by
Ann. 2008-91, 2008-42 I.R.B.963
9424
Corrected by
Ann. 2008-114, 2008-48 I.R.B.1226
December 22, 2008v2008–51 I.R.B.

2008–51 I.R.B.December 22, 2008

December 22, 20082008–51 I.R.B.

INTERNAL REVENUE BULLETIN
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