409A: the worst single tax provision of the Bush era

January 8th, 2009 by Joe Kristan

William Drennan, a law prof at good old Southern Illinois University-Carbondale, is exactly right about the execrable Section 409A deferred compensation rules:

Albert Einstein said “the hardest thing in the world to understand is the income tax.” The new nonqualified deferred compensation rules are a testament to Einstein’s brilliance. The new rules will fail to achieve their statutory purpose, will create traps for the unwary, and should be repealed retroactively.

Indeed they should. It won’t happen, though, until somebody actually tries to enforce the section by imposing current tax, plus a 20% penalty, on income never received by employees as a result of a careless mistake made by an employer in administering the byzantine Section 409A rules. If the IRS ever gets serious about enforcing this mistake, it will make the efforts to get relief from the incentive stock option AMT rules look like a minor matter.
Meanwhile, small businesses, non-profits, and even school districts have to deal with this horribly-concieved response to the Enron and Worldcom scandals by shooting the remaining horses after one escaped the barn. That’ll teach Ken Lay a lesson.
Via the TaxProf.

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