Does the fact that a taxpayer, by agreeing to defer receiving compensation in a year, earned the right to a 25% employer match in three years conditioned on the employee continuing to provide substantial services until that date mean the taxpayer now had a “substantial risk of forfeiture”?  The question arises when looking at whether, under Reg. §1.409A-1(d)(1), this is an allowable deferral of income under IRC §409A.

In Chief Counsel Advice 201645012 the issue was considered.

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The IRS has issued proposed regulations (REG-123854-12) upon which taxpayers may rely addressing issues related to nonqualified deferrred compensation arrangements subject to IRC §409A. These rules generally update and clarify provisions that are found in the existing regulations under §409A.

In Chief Counsel Advice 201603025 the IRS Chief Counsel’s office addressed whether a nonqualified stock option plan in question ran afoul of the provisions of IRC §409A and therefore required an inclusion in income on the date of grant.  The question turned on the proper valuation of the options in question, including whether the stock in question was readily tradable on an established securities market.