A coalition of more than 90 law firms has petitioned the Internal Revenue Service to extend by one year a deadline for imposing new regulations on nonqualified deferred compensation under section 409A of the Internal Revenue Code.
The effort, led by Skadden, Arps, Slate, Meagher & Flom, and involving a group of law firms described as heavyweights by the Financial Times, culminated in a brief letter that was sent to the IRS. It says that they and their clients just haven't been given enough time to comply with new rules, adopted by the IRS in April, that may now treat bonuses, severance packages, and stock options as deferred compensation—and provide for a hefty 20 percent tax penalty for violating section 409A.
Even for a law firm like Skadden, which has extensive experience in the area, there just isn't enough time to meet the current December 31, 2007 deadline, and the same is true for corporate clients, says Regina Olshan, a partner in the firm's New York office.
"Every employment agreement has to be amended by the end of the year," she told the Financial Times. "Does that sound like something that can be done well? The IRS has to ask: Do they want compliance, or is this just a revenue generator? Right now, there could be massive noncompliance."
In response, Andrew Desouza, a spokesman for the U.S. Treasury, stated, "there are no plans to extend the deadline at this time." The Treasury is reviewing the law firms' request.