###### Editorial Note on Part 1

#### Editorial Note:

IRS redesignated the following sections to appear below the undesignated center heading “Regulations Applicable to Certain Bonds Sold Prior to July 8, 1997” and preceding the undesignated center heading “Deductions for Personal Exemptions.” See 62 FR 25507 and 25513, May 9, 1997 for the specific sections involved in the redesignation.

#### § 1.409A-0 Table of contents.

This section lists captions contained in §§ 1.409A-1, 1.409A-2, 1.409A-3, 1.409A-4, 1.409A-5 and 1.409A-6.

## § 1.409A-1 Definitions and covered plans.

(a) Nonqualified deferred compensation plan.

(1) In general.

(2) Qualified employer plans.

(3) Certain foreign plans.

(i) Participation addressed by treaty.

(ii) Participation by nonresident aliens, certain resident aliens, and bona fide residents of possessions.

(iii) Participation by U.S. citizens and lawful permanent residents.

(iv) Plans subject to a totalization agreement and similar plans.

(v) Broad-based foreign retirement plan.

(4) Section 457 plans.

(5) Certain welfare benefits.

(b) Deferral of compensation

(1) In general.

(2) Earnings.

(3) Compensation payable pursuant to the service recipient's customary payment timing arrangement.

(4) Short-term deferrals.

(i) In general.

(ii) Certain delayed payments.

(iii) Examples.

(5) Stock options, stock appreciation rights, and other equity-based compensation.

(i) Stock rights.

(A) Nonstatutory stock options not providing for the deferral of compensation.

(B) Stock appreciation rights not providing for the deferral of compensation.

(C) Stock rights that may provide for the deferral of compensation.

(D) Feature for the deferral of compensation.

(E) Rights to dividends.

(ii) Statutory stock options.

(iii) Service recipient stock.

(A) In general.

(B) American depositary receipts.

(C) Mutual company units.

(D) Other entities.

(E) Eligible issuer of service recipient stock.

(*1*) In general.

(*2*) Investment vehicles.

(*3*) Corporate structures established or transactions undertaken for purposes of avoiding coverage under section 409A.

(*4*) Substitutions and assumptions by reason of a corporate transaction.

(iv) Determination of the fair market value of service recipient stock.

(A) Stock readily tradable on an established securities market.

(B) Stock not readily tradable on an established securities market.

(*1*) In general.

(*2*) Presumption of reasonableness.

(*3*) Use of alternative methods.

(v) Modifications, extensions, substitutions, and assumptions of stock rights.

(A) Treatment of modified and extended stock rights.

(B) Modification in general.

(C) Extensions.

(*1*) In general.

(*2*) Certain extensions before April 10, 2007.

(*3*) Examples.

(D) Substitutions and assumptions of stock rights by reason of a corporate transaction.

(E) Acceleration of date when exercisable.

(F) Discretionary added benefits.

(G) Change in underlying stock increasing value.

(H) Change in the number of shares purchasable.

(I) Rescission of changes.

(J) Successive modifications and extensions.

(K) Modifications and extensions in effect on October 23, 2004.

(vi) Meaning and use of certain terms.

(A) Option.

(B) Date of grant of option.

(C) Stock.

(D) Exercise price.

(E) Exercise.

(F) Transfer.

(G) Readily tradable.

(H) Application to stock appreciation rights.

(6) Restricted property, section 402(b) trusts, and section 403(c) annuities.

(i) In general.

(ii) Promises to transfer property.

(7) Arrangements between partnerships and partners. [Reserved]

(8) Certain foreign plans.

(i) Plans with respect to compensation covered by treaty or other international agreement.

(ii) Plans with respect to certain other compensation.

(iii) Tax equalization agreements.

(iv) Certain limited deferrals of a nonresident alien.

(v) Additional foreign plans.

(vi) Earnings.

(9) Separation pay plans.

(i) In general.

(ii) Collectively bargained separation pay plans.

(iii) Separation pay due to involuntary separation from service or participation in a window program.

(iv) Foreign separation pay plans.

(v) Reimbursements and certain other separation payments.

(A) In general.

(B) Medical benefits.

(C) In-kind benefits and direct service recipient payments.

(D) Limited payments.

(E) Limited period of time.

(vi) Window programs—definition.

(10) Certain indemnification and liability insurance plans.

(11) Legal settlements.

(12) Certain educational benefits.

(c) Plan.

(1) In general.

(2) Plan aggregation rules.

(i) In general.

(ii) Dual status.

(3) Establishment of plan.

(i) In general.

(ii) Initial deferral election provisions.

(iii) Subsequent deferral election provisions.

(iv) Payment accelerations.

(v) Six-month delay for specified employees.

(vi) Plan amendments.

(vii) Transition rule for written plan requirement.

(viii) Plan aggregation rules.

(d) Substantial risk of forfeiture.

(1) In general.

(2) Stock rights.

(3) Enforcement of forfeiture condition.

(i) In general.

(ii) Examples.

(e) Performance-based compensation.

(1) In general.

(2) Payments based upon subjective performance criteria.

(3) Equity-based compensation.

(f) Service provider.

(1) In general.

(2) Independent contractors.

(i) In general.

(ii) Related person.

(iii) Significant services.

(iv) Management services.

(v) Services provided to related persons.

(g) Service recipient.

(h) Separation from service.

(1) Employees.

(i) In general.

(ii) Termination of employment.

(2) Independent contractors.

(i) In general.

(ii) Special rule.

(3) Definition of service recipient and employer.

(4) Asset purchase transactions.

(5) Dual status.

(6) Collectively bargained plans covering multiple employers.

(i) Specified employee.

(1) In general.

(2) Definition of compensation.

(3) Specified employee identification date.

(4) Specified employee effective date.

(5) Alternative methods of satisfying the six-month delay rule.

(6) Corporate transactions.

(i) Mergers and acquisitions of public service recipients.

(ii) Mergers and acquisitions of nonpublic service recipients.

(iii) Spinoffs.

(iv) Public offerings and other corporate transactions.

(v) Alternative methods of compliance.

(7) Nonresident alien employees.

(8) Elections affecting the identification of specified employees.

(j) Nonresident alien.

(k) Established securities market.

(l) Stock right.

(m) Separation pay plan.

(n) Involuntary separation from service.

(1) In general.

(2) Separations from service for good reason.

(i) In general.

(ii) Safe harbor.

(3) Special rule for certain collectively bargained plans.

(o) Earnings.

(p) In-kind benefits.

(q) Application of definitions and rules.

## § 1.409A-2 Deferral elections.

(a) Initial elections as to the time and form of payment.

(1) In general.

(2) Service recipient elections.

(3) General rule.

(4) Initial deferral election with respect to short-term deferrals.

(5) Initial deferral election with respect to certain forfeitable rights.

(6) Initial deferral election with respect to fiscal year compensation.

(7) First year of eligibility.

(i) In general.

(ii) Eligibility to participate.

(iii) Application to excess benefit plans.

(8) Initial deferral election with respect to performance-based compensation.

(9) Nonqualified deferred compensation plans linked to qualified employer plans or certain other arrangements.

(10) Changes in elections under a cafeteria plan.

(11) Initial deferral election with respect to certain separation pay.

(12) Initial deferral election with respect to certain commissions.

(i) Sales commission compensation.

(ii) Investment commission compensation.

(iii) Commission compensation and related persons.

(13) Initial deferral election with respect to compensation paid for final payroll period.

(i) In general.

(ii) Transition rule.

(14) Elections to annualize recurring part-year compensation.

(15) USERRA rights.

(b) Subsequent changes in time and form of payment.

(1) In general.

(2) Definition of payments for purposes of subsequent changes in the time and form of payment.

(i) In general.

(ii) Life annuities.

(A) In general.

(B) Certain features disregarded.

(C) Subsidized joint and survivor annuities.

(D) Actuarial assumptions and methods.

(iii) Installment payments.

(iv) Transition rule.

(3) Beneficiaries.

(4) Domestic relations orders.

(5) Coordination with prohibition against acceleration of payments.

(6) Application to multiple payment events.

(7) Delay of payments under certain circumstances.

(i) Payments subject to section 162(m).

(ii) Payments that would violate Federal securities laws or other applicable law.

(iii) Other events and conditions.

(8) USERRA rights.

(9) Examples.

(c) Special rules for certain resident aliens.

## § 1.409A-3 Permissible payments

(a) In general.

(b) Designation of payment upon a permissible payment event.

(c) Designation of alternative specified dates or payment schedules based upon date of permissible event.

(d) When a payment is treated as made upon the designated payment date.

(e) Designation of time and form of payment with respect to earnings.

(f) Substitutions.

(g) Disputed payments and refusals to pay.

(h) Special rule for certain resident aliens.

(i) Definitions and special rules.

(1) Specified time or fixed schedule.

(i) In general.

(ii) Payment schedules with formula and fixed limitations.

(A) Individual limitations.

(B) Limitations on aggregate payments to all participants in substantially identical plans.

(iii) Payment schedules determined by timing of payments received by the service recipient.

(iv) Reimbursement or in-kind benefit plans.

(A) General rule.

(B) Medical reimbursement arrangements.

(v) Tax gross-up payments.

(vi) Examples.

(2) Separation from service—required delay in payment to a specified employee pursuant to a separation from service.

(i) In general.

(ii) Application of payment rules to delayed payments.

(3) Unforeseeable emergency.

(i) Definition.

(ii) Amount of payment permitted upon an unforeseeable emergency.

(iii) Payments due to an unforeseeable emergency.

(4) Disability.

(i) In general.

(ii) Limited plan definition of disability.

(iii) Determination of disability.

(5) Change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation.

(i) In general.

(ii) Identification of relevant corporation.

(A) In general.

(B) Majority shareholder.

(C) Example.

(iii) Attribution of stock ownership.

(iv) Special rules for certain delayed payments pursuant to a change in control event.

(A) Certain transaction-based compensation.

(B) Certain nonvested compensation.

(v) Change in the ownership of a corporation.

(A) In general.

(B) Persons acting as a group.

(vi) Change in the effective control of a corporation.

(A) In general.

(B) Multiple change in control events.

(C) Acquisition of additional control.

(D) Persons acting as a group.

(vii) Change in the ownership of a substantial portion of a corporation's assets.

(A) In general.

(B) Transfers to a related person.

(C) Persons acting as a group.

(6) Certain back-to-back arrangements.

(i) In general.

(ii) Example.

(j) Prohibition on acceleration of payments.

(1) In general.

(2) Application to multiple payment events.

(3) Beneficiaries.

(4) Exceptions.

(i) In general.

(ii) Domestic relations order.

(iii) Conflicts of interest.

(A) Compliance with ethics agreements with the Federal government.

(B) Compliance with ethics laws or conflicts of interest laws.

(iv) Section 457 plans.

(v) Limited cashouts.

(vi) Payment of employment taxes.

(vii) Payment upon income inclusion under section 409A.

(viii) Cancellation of deferrals following an unforeseeable emergency or hardship distribution.

(ix) Plan terminations and liquidations.

(x) Certain distributions to avoid a nonallocation year under section 409(p).

(xi) Payment of state, local, or foreign taxes.

(xii) Cancellation of deferral elections due to disability.

(xiii) Certain offsets.

(xiv) Bona fide disputes as to a right to a payment.

(5) Nonqualified deferred compensation plans linked to qualified employer plans or certain other arrangements.

(6) Changes in elections under a cafeteria plan.

## § 1.409A-4 Calculation of income inclusion. [Reserved]

## § 1.409A-5 Funding. [Reserved]

## § 1.409A-6 Application of section 409A and effective dates.

(a) Statutory application and effective dates

(1) Application to amounts deferred.

(i) In general.

(ii) Collectively bargained plans.

(2) Identification of date of deferral for statutory effective date purposes.

(3) Calculation of amount of compensation deferred for statutory effective date purposes.

(i) Nonaccount balance plans.

(ii) Account balance plans.

(iii) Equity-based compensation plans.

(iv) Earnings.

(v) Definition of plan.

(4) Material modifications.

(i) In general.

(ii) Adoptions of new plans.

(iii) Suspension or termination of a plan.

(iv) Changes to investment measures—account balance plans.

(v) Stock rights.

(vi) Rescission of modifications.

(vii) Definition of plan.

(b) Regulatory applicability date.

[T.D. 9321, 72 FR 19276, Apr. 17, 2007]