n-17-75.pdf

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Notice 2017-75
Guidance Under Section 409A for Pre-2009 Section 457A Deferrals
I. Purpose
This notice provides guidance on the application of Internal Revenue Code
(Code) section 409A with respect to amounts that are includible in income pursuant to
section 801(d)(2) of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008,
Div. C of Pub. L. No. 110-343 (TEAMTRA). Section 801(a) of TEAMTRA added section
457A to the Code. Section 457A generally applies to deferred amounts that are
attributable to services performed after December 31, 2008. However, if section 457A
does not apply to a deferred amount solely because the amount is attributable to
services performed before 2009, section 801(d)(2) of TEAMTRA provides that the
amount is includible in gross income in the later of the last taxable year beginning
before 2018 or the taxable year of vesting. This guidance provides that a nonqualified
deferred compensation plan that is subject to the provisions of Code section 409A will
not fail to meet the requirements of section 409A solely because payments of deferred
amounts under the plan are accelerated to pay income taxes on the amounts includible
in income pursuant to section 801(d)(2) of TEAMTRA. This notice is intended to
supplement, not supersede or modify, the guidance provided in Notice 2009-8, 2009-4
IRB 347 (Jan. 26, 2009).
II. Background
A. Section 457A and Section 801(d)(2) of TEAMTRA

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Section 457A generally provides that compensation deferred under a
nonqualified deferred compensation plan of a nonqualified entity is includible in gross
income when there is no substantial risk of forfeiture of the rights to such compensation.
For this purpose, section 457A(d)(3) provides that the term “nonqualified deferred
compensation plan” has the meaning provided under section 409A(d), subject to certain
modifications, and section 457A(b) provides that the term “nonqualified entity” means
(1) any foreign corporation unless substantially all of its income is (a) effectively
connected with the conduct of a trade or business in the United States, or (b) subject to
a comprehensive foreign income tax, and (2) any partnership unless substantially all of
its income is allocated to persons other than (a) foreign persons with respect to whom
such income is not subject to a comprehensive foreign income tax, and (b) tax-exempt
organizations.
Section 457A was added to the Code by section 801(a) of TEAMTRA, which was
enacted on October 3, 2008. Section 801(d)(1) of TEAMTRA provides that “the
amendments made by this section shall apply to amounts deferred which are
attributable to services performed after December 31, 2008.” Section 801(d)(2) of
TEAMTRA further provides, however, that
any amount deferred to which the amendments made by this section do
not apply solely by reason of the fact that the amount is attributable to
services performed before January 1, 2009, to the extent such amount is
not includible in gross income in a taxable year beginning before 2018, . . .
shall be includible in gross income in the later of – (A) the last taxable year

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beginning before 2018, or (B) the taxable year in which there is no
substantial risk of forfeiture of the rights to such compensation ... .
B. Section 409A and Accelerated Distributions
Section 409A(a)(3) provides that, except as provided in regulations issued by the
Secretary, a nonqualified deferred compensation plan may not permit the acceleration
of the time or schedule of any payment under the plan. Section 1.409A-3(j) provides
that a nonqualified deferred compensation plan may permit the acceleration of the time
or schedule of any payment only pursuant to an exception provided in § 1.409A-3(j)(4).
Section 1.409A-3(j)(4) does not provide an exception that allows a service provider to
receive an accelerated distribution to pay income taxes due on amounts includible in
income under section 801(d)(2) of TEAMTRA.
C. Notice 2009-8 and the Application of Section 409A to Pre-2009
Section 457A Deferrals
Notice 2009-8, Q&A-25 provides that, for deferred amounts attributable to
services performed before January 1, 2009, that are required to be included in gross
income in the later of the last taxable year beginning before 2018 or the taxable year in
which there is no substantial risk of forfeiture of the rights to the compensation (pre-
2009 section 457A deferrals), a change in the time and form of payment to conform the
date of distribution to the date the amount may be required to be included in income
under section 801(d)(2) of TEAMTRA will not be treated as an impermissible
acceleration under section 409A(a)(3) and § 1.409A-3(j) provided that the change in the
time and form of payment was established in writing and effective on or before

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December 31, 2011. In addition, Notice 2009-8, Q&A-25 provides that, to the extent a
deferred amount attributable to services performed before January 1, 2009, was earned
and vested before December 31, 2004, and is not otherwise subject to the requirements
of section 409A due to the effective date rules under § 1.409A-6, a change in the time
and form of payment solely to conform the date of distribution to the date the amount
may be required to be included in income under section 801(d)(2) of TEAMTRA is not
treated as a material modification of the arrangement under § 1.409A-6(a)(4) provided
that the change in the time and form of payment is established in writing and effective
on or before December 31, 2011.
III. Guidance Permitting Accelerated Distributions to Pay Income Taxes on Pre-2009
Section 457A Deferrals
Pursuant to the authority provided in section 409A(a)(3), the Department of the
Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue
regulations applicable as of December 08, 2017 providing the relief set forth in this
paragraph; taxpayers may rely on the relief described in this paragraph until the
regulations are finalized. The regulations will permit the acceleration of payments under
a nonqualified deferred compensation plan to pay Federal, state, local, and foreign
income taxes due on pre-2009 section 457A deferrals that are includible in gross
income. Specifically, the Treasury Department and the IRS intend to issue regulations
providing that a change in the time and form of payment under a nonqualified deferred
compensation plan to pay Federal, state, local, and foreign income taxes on pre-2009
section 457A deferrals will not be treated as an impermissible acceleration under
section 409A(a)(3) and § 1.409A-3(j)(1). These regulations will also provide that, to the

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extent a deferred amount attributable to services performed before January 1, 2009,
was earned and vested before December 31, 2004, and is not otherwise subject to the
requirements of section 409A due to the effective date rules under § 1.409A-6, a
change in the time and form of payment of the deferred amount to pay Federal, state,
local, and foreign income taxes on pre-2009 section 457A deferrals will not be treated
as a material modification of such arrangement under § 1.409A-6(a)(4). The relief
provided in these regulations will apply only to the extent that that the amount of any
distribution to pay Federal, state, local, and foreign income taxes on pre-2009 section
457A deferrals is not more than an amount equal to the Federal, state, local, and
foreign income tax withholding that would have been remitted by an employer if there
had been a payment of wages equal to the income includible by the service provider
under section 801(d)(2) of TEAMTRA.
IV. Drafting Information
The principal author of this notice is William McNally of the Office of Associate
Chief Counsel (Tax Exempt and Government Entities). However, other personnel from
the Treasury Department and the IRS participated in its development. For further
information regarding this notice, contact Mr. McNally at (202) 317-5600 (not a toll-free
call).