On November 30, 2010 the Internal Revenue Service (“IRS”) issued Notice 2010-80 regarding corrections procedures under Section 409A and deferred compensation arrangements. The majority of the new guidance is expansion or clarification of earlier guidance in IRS Notice 2010-6 (which provided certain documentary compliance corrections procedures) and IRS Notice 2008-113 (which provided certain operational compliance corrections procedures).

Section 409A is designed to place restrictions on nonqualified deferred compensation arrangements with employees and other service providers and to subject noncompliant arrangements to a 20% additional Section 409A tax (with an additional 20% tax in California). Section 409A’s reach extends beyond traditional deferred compensation arrangements into employment agreements, severance arrangements, bonus provisions and even certain stock rights. Because the complexity and confusion of Section 409A has created inadvertent and unintentional documentary and operational errors, the IRS has allowed limited documentary corrections procedures under Notice 2010-6 and limited operational corrections procedures under Notice 2008-113.