457A Effective Date January 1, 2009: Are You Ready?

The financial industry bailout legislation passed in October added Section 457A to the Internal Revenue Code, effective January 1, 2009. Section 457A potentially subjects certain deferred compensation arrangements maintained by certain foreign entities and partnerships for US taxpayers to an additional 20% tax plus underpayment penalty or an acceleration of income.

While this provision was intended primarily to address a particular deferred compensation structure commonly used by hedge funds, the effect is much broader. It also potentially applies to deferred compensation arrangements (defined more broadly than in Section 409A) maintained for US expatriates by foreign entities in jurisdictions that do not have comprehensive tax treaties with the US, such as Hong Kong and Brazil, for example. Other countries with treaties, like Switzerland, may also be affected depending on IRS regulations to be issued. 

For more information on this event, please contact Christine Hayes, Manager of Special Events, via e-mail at chayes@cgsh.com.