Employers have a time-sensitive opportunity to correct certain documentary violations in plans or contracts subject to Internal Revenue Code Section 409A under the Internal Revenue Service’s (IRS’s) recently introduced voluntary document correction program. Corrections made by December 31, 2010, will, in most instances, allow employees to avoid recognizing additional taxable income and taxes under Section 409A that generally will apply after 2010.

Employers who have identified errors eligible for correction should strongly consider participating in the correction program by year-end. Action before this deadline generally will enable employees to avoid any additional taxes under Section 409A. Corrections after 2010 may require the employer to report additional taxable income to employees under Section 409A at a reduced rate provided under the correction program.