IRS Initiates 409A Valuation Audits

July 21, 2014 at 11:24 am Leave a comment

Tax code Section 409A audits of selected taxpayers are underway reports BVWire. While the initial scope of the audits is limited, this is likely just the first step toward a more expansive project.

Section 409A regulates the tax treatment of nonqualified deferred compensation plans. The IRS audit project will focus on three issues: (1) initial deferral elections; (2) subsequent deferral elections; and (3) payouts under Section 409A, including the six-month delay for specified employees.

The IRS will select no more than 50 employers for the audits, which will be limited to the top 10 highly compensated individuals, according to Thomas D. Scholz, IRS senior technician reviewer, Office of Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities. Scholz spoke unofficially May 9 at a session of the American Bar Association Section of Taxation meeting, reports Bloomberg BNA.

More 409A audits are likely
Of course, most companies will avoid the 409A audits—for now. “If past history holds true, this program is just a first step in a process that will allow the IRS to hone its audit techniques and areas of inquiry with respect to 409A issues before the program is expanded to more employers,” according to executive pay experts Towers Watson. It advises plan sponsors to periodically conduct self-audits to make sure their plans are in compliance.

John Heath is Executive Vice President, Valuations & Financial Advisory Services of The Brenner Group. John joined The Brenner Group, Inc.® in 1994 and manages the firm’s Valuations and Financial Advisory Services Groups. John has more than thirty-five years of experience in corporate finance, and has assisted more than 600 companies with financing, public underwritings, mergers, acquisitions, and valuations. Prior to joining The Brenner Group, John held executive management positions at Smith Barney, The First National Bank of Chicago, and Price Waterhouse. He received an MBA in Finance from The Wharton School of Business, and a BA degree from the University of Pennsylvania. John is a member and Accredited Senior Appraiser of the American Society of Appraisers and a member of the Appraisal Issues Task Force.

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Entry filed under: Financial Advisory, Interim Management, Valuations.

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