On December 20, 2004, Treasury and the IRS issued Notice 2005-1, which represents the first round of regulatory guidance on the application of the nonqualified deferred compensation restrictions in section 409A of the Internal Revenue Code. Section 409A was enacted as part of the American Jobs Creation Act of 2004.

This guidance is limited in scope, and takes the form of 38 questions and answers on the following topics: definitions and coverage; stock options and stock appreciation rights; change in control events; acceleration of payments; effective dates and transition relief; and the application of information reporting and wage withholding requirements. In addition, the Notice seeks comments on various other aspects of section 409A that Treasury and IRS intend to address in future guidance. A summary of the new guidance is attached for your information.

Section 409A of the Code is generally effective January 1, 2005, with regard to deferrals on or after that date, and imposes new rules regarding permissible distribution events and deferral/payout elections. Most employers will need to respond to the new law in 2005 in order to prevent covered employees from incurring adverse tax consequences under section 409A.

Summary of Initial IRS Guidance on Nonqualified Deferred Compensation Plans

If you have any questions about the new guidance or section 409A, please contact:

Layla Asali, lasali@milchev.com, 202-626-5866

Jeanette Dayan*

Marianna Dyson*

Fred Oliphant*

*Former Miller & Chevalier attorney

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

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