Bulletin No. 2010-3January 19, 2010

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2010–2, page 272.Section 1274A — inflation adjusted numbers for 2010.This ruling provides the dollar amounts, increased by the 2010inflation adjustment, for section 1274A of the Code. Rev. Rul.2008–52 supplemented and superseded.

Rev. Rul. 2010–3, page 272.Section 1256 contracts market to market. This rulingholds that the London International Financial Futures and Op-tions Exchange (LIFFE), which is a United Kingdom derivativesmarket, is a qualified board or exchange within the meaning ofsection 1256(g)(7)(C) of the Code.

Notice 2010–7, page 296.This notice modifies Notice 2008–88, 2008–42 I.R.B. 933,to extend the expiration dates from December 31, 2009 toDecember 31, 2010 of certain temporary rules allowing stateand local government issuers to purchase and hold their owntax-exempt bonds under special reissuance standards for tax-exempt bonds. Notice 2008–88 amended and supplementedNotice 2008–41, 2008–15 I.R.B. 742, regarding reissuancestandards for tax-exempt bonds to expand the circumstancesand time periods during which the Treasury Department andthe Service would treat a tax-exempt bond that is purchasedby its state or local governmental issuer as continuing in effectwithout resulting in a reissuance or retirement of the purchasedbond solely for purposes of section 103 and sections 141through 150 of the Code, as amended. Notices 2008–41 and2008–88 modified.

Notice 2010–10, page 299.This notice provides guidance on the tax-exempt bond provi-sions for the Midwestern and Hurricane Ike disaster areas un-

der the Heartland Disaster Tax Relief Act of 2008, the Tax Ex-tenders and Alternative Minimum Tax Relief Act of 2008 (theAct) and section 1400N(a) of the Code, as modified by theAct. This notice also provides guidance on reimbursement ex-penditures made with proceeds of tax-exempt bonds issued forMidwestern and Hurricane Ike disaster areas and tax-exempt“Qualified Gulf Opportunity Zone Bonds” issued under section1400N(a).

Rev. Proc. 2010–10, page 300.Maximum vehicle values. This procedure provides the max-imum vehicle values for use with the special valuation rules un-der regulations sections 1.61–21(d) and (e). These values areadjusted for inflation and must be adjusted annually by refer-ence to the Consumer Price Index.

Rev. Proc. 2010–12, page 302.Section 305. Section 305 treatment of a stock distribution bya publicly traded regulated investment company or real estateinvestment trust in which the shareholders have an election toreceive money or stock, subject to an aggregate limitation onthe amount of money to be distributed. Rev. Proc. 2009–15amplified and superseded.

(Continued on the next page)

Finding Lists begin on page ii.

EMPLOYEE PLANS

Notice 2010–6, page 275.This notice provides rules governing the taxation of nonquali-fied deferred compensation plans. Section 409A of the Coderequires that a nonqualified deferred compensation plan meetcertain plan document requirements, and that the plan be op-erated in compliance with the plan document. Notice 2010–6permits taxpayers to correct certain failures of a nonqualifieddeferred compensation plan to comply with the plan documentrequirements of section 409A, or in certain circumstances, tolimit the amount includible in income and additional taxes undersection 409A as a result of a plan document failure. Notices2008–113 and 2008–115 modified.

ADMINISTRATIVE

Notice 2010–8, page 297.This notice provides interim rules extending the period for sub-mission to the IRS (or an agent or contractor of the IRS) of tax-payer authorizations permitting disclosure of returns and returninformation pursuant to section 6103(c) of the Code.

Notice 2010–9, page 298.The notice clarifies that, for calendar year 2009, filers ofForm 1099–B, Form 1099–S, and certain information on Form1099–MISC have until February 16, 2010, to report both theinformation required on these forms and certain other taxinformation furnished on the same date. Notice 2009–11amplified.

Rev. Proc. 2010–10, page 300.Maximum vehicle values. This procedure provides the max-imum vehicle values for use with the special valuation rules un-der regulations sections 1.61–21(d) and (e). These values areadjusted for inflation and must be adjusted annually by refer-ence to the Consumer Price Index.

January 19, 2010 2010–3 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2010–3 I.R.B. January 19, 2010

January 19, 2010 2010–3 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 301.—Distributionsof Property26 CFR 1.301–10: Rules applicable with respect todistributions of money and other property.

This revenue procedure provides temporary guid-ance regarding certain stock distributions by publiclytraded regulated investment companies (RICs) andreal estate investment trusts (REITs). See Rev. Proc.2010-12, page 302.

Section 305.—Distributionsof Stock and Stock Rights26 CFR 1.305–1: Stock dividends.

This revenue procedure provides temporary guid-ance regarding certain stock distributions by publiclytraded regulated investment companies (RICs) andreal estate investment trusts (REITs). See Rev. Proc.2010-12, page 302.

Section 483.—Interest onCertain Deferred Payments

This ruling provides the dollar amounts, increasedby the 2010 inflation adjustment, for section 1274Aof the Code. Rev. Rul. 2008–52 supplemented andsuperseded. See Rev. Rul. 2010-2, page 272.

Section 1256.—Section1256 Contracts Markedto Market(Also: §§ 446, 481, 7805; 1.446–1, 301.7805–1.)

Section 1256 contracts market tomarket. This ruling holds that the Lon-don International Financial Futures andOptions Exchange (LIFFE), which is aUnited Kingdom derivatives market, isa qualified board or exchange within themeaning of section 1256(g)(7)(C) of theCode.

Rev. Rul. 2010–3

ISSUE

Is London International Financial Fu-tures and Options Exchange (“LIFFE”),which is a regulated exchange of theUnited Kingdom, a qualified board orexchange within the meaning of section1256(g)(7)(C) of the Internal RevenueCode?

LAW AND ANALYSIS

Section 1256(g)(7) provides that theterm “qualified board or exchange” means:

(A) a national securities exchangewhich is registered with the Securities andExchange Commission,

(B) a domestic board of trade desig-nated as a contract market by the Com-modity Futures Trading Commission, or

(C) any other exchange, board of trade,or other market which the Secretary deter-mines has rules adequate to carry out thepurposes of section 1256.

HOLDING

The Internal Revenue Service deter-mines that LIFFE, which is a regulatedexchange of the United Kingdom, is aqualified board or exchange within themeaning of section 1256(g)(7)(C).

EFFECTIVE DATE

Under the authority of section7805(b)(8) of the Code, this revenue rulingis effective for LIFFE Contracts (futurescontracts and futures contract options)entered into on or after January 1, 2010.

CHANGE IN METHOD OFACCOUNTING

A change in the treatment of LIFFEContracts to comply with this revenue rul-ing is a change in method of accountingwithin the meaning of sections 446 and481 and the regulations thereunder. TheCommissioner grants consent to taxpayersto change to the section 1256 mark to mar-ket method for the first taxable year dur-ing which the taxpayer holds a LIFFE Con-tract that was entered into on or after Jan-uary 1, 2010. Such a taxpayer need notfile a Form 3115, Application for Changein Accounting Method, and LIFFE Con-tracts that were entered into before January1, 2010 will not be covered by the changein method for which consent is granted.Because the change is being made on a“cut-off” basis, there is no potential omis-sion or duplication of income or deduc-tions, and therefore no adjustment undersection 481 is required.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Andrea Hoffenson of the Office ofAssociate Chief Counsel (Financial Insti-tutions & Products). For further informa-tion regarding this revenue ruling, contactAndrea Hoffenson at (202) 622–3930 (nota toll-free call).

Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property

This ruling provides the dollar amounts, increasedby the 2010 inflation adjustment, for section 1274Aof the Code. Rev. Rul. 2008–52 supplemented andsuperseded. See Rev. Rul. 2010-2, page 272.

Section 1274A.—SpecialRules for CertainTransactions Where StatedPrincipal Amount Does NotExceed $2,800,00026 CFR 1.1274A–1: Special rules for certain trans-actions where stated principal amount does not ex-ceed $2,800,000.(Also §§ 483, 1274.)

Section 1274A — inflation adjustednumbers for 2010. This ruling providesthe dollar amounts, increased by the 2010inflation adjustment, for section 1274A ofthe Code. Rev. Rul. 2008–52 supple-mented and superseded.

Rev. Rul. 2010–2

This revenue ruling provides the dollaramounts, increased by the 2010 inflationadjustment, for § 1274A of the InternalRevenue Code.

BACKGROUND

In general, §§ 483 and 1274 determinethe principal amount of a debt instrumentgiven in consideration for the sale or ex-change of nonpublicly traded property. Inaddition, any interest on a debt instrumentsubject to § 1274 is taken into account un-der the original issue discount provisionsof the Code. Section 1274A, however,

2010–3 I.R.B. 272 January 19, 2010

modifies the rules under §§ 483 and 1274for certain types of debt instruments.

In the case of a “qualified debt instru-ment,” the discount rate used for purposesof §§ 483 and 1274 may not exceed 9 per-cent, compounded semiannually. Section1274A(b) defines a qualified debt instru-ment as any debt instrument given in con-sideration for the sale or exchange of prop-erty (other than new § 38 property withinthe meaning of § 48(b), as in effect on theday before the date of enactment of theRevenue Reconciliation Act of 1990) if thestated principal amount of the instrumentdoes not exceed the amount specified in§ 1274A(b). For debt instruments arisingout of sales or exchanges before January 1,1990, this amount is $2,800,000.

In the case of a “cash method debt in-strument,” as defined in § 1274A(c), theborrower and lender may elect to use thecash receipts and disbursements methodof accounting. In particular, for any cashmethod debt instrument, § 1274 does notapply, and interest on the instrument is ac-counted for by both the borrower and the

lender under the cash method of account-ing. A cash method debt instrument isa qualified debt instrument that meets thefollowing additional requirements: (A) Inthe case of instruments arising out of salesor exchanges before January 1, 1990, thestated principal amount does not exceed$2,000,000; (B) the lender does not use anaccrual method of accounting and is not adealer with respect to the property sold orexchanged; (C) § 1274 would have appliedto the debt instrument but for an electionunder § 1274A(c); and (D) an election un-der § 1274A(c) is jointly made with respectto the debt instrument by the borrower andlender. Section 1.1274A–1(c)(1) of the In-come Tax Regulations provides rules con-cerning the time for, and manner of, mak-ing this election.

Section 1274A(d)(2) provides that, forany debt instrument arising out of a saleor exchange during any calendar yearafter 1989, the dollar amounts stated in§ 1274A(b) and § 1274A(c)(2)(A) areincreased by the inflation adjustment forthe calendar year. Any increase due to

the inflation adjustment is rounded to thenearest multiple of $100 (or, if the increaseis a multiple of $50 and not of $100, theincrease is increased to the nearest mul-tiple of $100). The inflation adjustmentfor any calendar year is the percentage (ifany) by which the CPI for the precedingcalendar year exceeds the CPI for calendaryear 1988. Section 1274A(d)(2)(B) de-fines the CPI for any calendar year as theaverage of the Consumer Price Index as ofthe close of the 12-month period endingon September 30 of that calendar year.

INFLATION-ADJUSTED AMOUNTSUNDER § 1274A

For debt instruments arising out of salesor exchanges after December 31, 1989, theinflation-adjusted amounts under § 1274Aare shown in Table 1.

Rev. Rul. 2010–2 Table 1Inflation-Adjusted Amounts Under § 1274A

Calendar Yearof Sale

or Exchange

1274A(b) Amount(qualified debt

instrument)

1274A(c)(2)(A) Amount(cash method debt

instrument)

1990 $2,933,200 $2,095,1001991 $3,079,600 $2,199,7001992 $3,234,900 $2,310,6001993 $3,332,400 $2,380,3001994 $3,433,500 $2,452,5001995 $3,523,600 $2,516,9001996 $3,622,500 $2,587,5001997 $3,723,800 $2,659,9001998 $3,823,100 $2,730,8001999 $3,885,500 $2,775,4002000 $3,960,100 $2,828,7002001 $4,085,900 $2,918,5002002 $4,217,500 $3,012,5002003 $4,280,800 $3,057,7002004 $4,381,300 $3,129,5002005 $4,483,000 $3,202,1002006 $4,630,300 $3,307,4002007 $4,800,800 $3,429,1002008 $4,913,400 $3,509,6002009 $5,131,700 $3,665,5002010 $5,115,100 $3,653,600

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–1984 base, publishedby the Bureau of Labor Statistics.

January 19, 2010 273 2010–3 I.R.B.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2008–52, 2008–49 I.R.B.1233, is supplemented and superseded.

DRAFTING INFORMATION

The author of this revenue ruling is An-drea M. Hoffenson of the Office of the As-sociate Chief Counsel (Financial Institu-

tions and Products). For further informa-tion regarding this revenue ruling, pleasecontact Ms. Hoffenson at (202) 622–3930(not a toll-free call).

2010–3 I.R.B. 274 January 19, 2010

Part III. Administrative, Procedural, and MiscellaneousRelief and Guidance onCorrections of CertainFailures of a NonqualifiedDeferred Compensation Planto Comply with § 409A(a)

Notice 2010–6

TABLE OF CONTENTS

I. Purpose

II. Background

III. Eligibility Requirements and Effect of CorrectionA. In GeneralB. Correction of Plans Containing Substantially Similar Document FailuresC. Relief not Available to Service Providers and Certain Service Recipients Under ExaminationD. Relief not Available for Intentional Failures or Listed TransactionsE. Amounts Included in Income as a Condition of CorrectionF. Date of Correction; Determining Certain PeriodsG. Linked Plans and Stock Rights not Eligible for ReliefH. New or Modified Payment Events Required as a Condition of CorrectionI. Effect of CorrectionJ. References to the Internal Revenue Code; Certain Terms

IV. Application of § 409A(a) to Certain Ambiguous Plan TermsA. Terms Providing for a Payment “As Soon as Practicable” or Substantially Similar Language Following a PermissiblePayment EventB. Permissible Payment Event with no Definition or an Ambiguous DefinitionC. Examples

V. Correction of Impermissible Definition of Otherwise Permissible Payment EventsA. Impermissible Definition of Separation from ServiceB. Impermissible Definition of a Change in Control EventC. Impermissible Definition of DisabilityD. Examples

VI. Correction of Impermissible Payment Periods following a Permissible Payment EventA. Payment Periods of Longer than 90 Days Following a Permissible Payment EventB. Payment Periods Following a Permissible Payment Event Dependent upon the Service Provider Completing CertainEmployment-Related ActionsC. Examples

VII. Correction of Certain Impermissible Payment Events and Payment SchedulesA. Plans with Permissible and Impermissible Payment Events under § 409AB. Plans with Only Impermissible Payment Events under § 409AC. Certain Impermissible Alternative Payment SchedulesD. Impermissible Service Provider or Service Recipient Discretion with Respect to a Payment Schedule Following aPermissible Payment Event (Including Impermissible Subsequent Deferral Elections)E. Impermissible Service Recipient Discretion to Accelerate Payment EventsF. Impermissible Reimbursement or In-Kind Benefit ProvisionsG. Examples

VIII. Correction of Failure to Include Six-Month Delay of Payment for Specified Employees

IX. Correction of Provisions Providing for Impermissible Initial Deferral Elections

X. Amendment Period Following a Service Recipient’s Initial Adoption of a Plan

XI. Transition ReliefA. Correction of Document Failures Described in this NoticeB. Correction of Impermissible Provisions Linking Nonqualified Deferred Compensation Plans

January 19, 2010 275 2010–3 I.R.B.

C. Correction of Payment Schedules Determined by the Timing of Payments Received by the Service RecipientD. Service Recipients Under Examination for Returns Covering Periods Beginning on or Before December 31, 2011

XII. Information and Reporting RequirementsA. Information Required for Correction of a Document FailureB. Attachment to Service Recipient Tax Return for Failures Described in §§ V through XI of this NoticeC. Information to be Provided to Service Provider for Failures Described in §§ V through XI of this NoticeD. Attachment to Service Provider Tax Return for Failures Described in §§ V through XI of this Notice

XIII. Modifications to Notice 2008–113

XIV. Effect on Other Documents

XV. Request for Comments

XVI. Paperwork Reduction Act

XVII. Drafting Information

I. PURPOSE

This notice provides methods for tax-payers to voluntarily correct many typesof failures to comply with the documentrequirements applicable under § 409A ofthe Internal Revenue Code (Code) to non-qualified deferred compensation plans andthereby avoid or reduce the current in-come inclusion and additional taxes un-der § 409A. This document correction pro-gram is intended to encourage taxpayersto review nonqualified deferred compen-sation plans to identify provisions that failto comply with the requirements of § 409Aand § 1.409A–1(c) of the Income Tax Reg-ulations (a document failure), and to cor-rect those plan provisions promptly, whilealso not providing an advantage to taxpay-ers participating in plans that initially failto comply with § 409A over taxpayers par-ticipating in plans drafted in compliancewith § 409A. Accordingly, this notice pro-vides:

• Clarification that certain languagecommonly included in plan documentswill not cause a document failure.

• Relief permitting correction of cer-tain document failures without currentincome inclusion or additional taxesunder § 409A, provided, in certaincircumstances, that the corrected planprovision does not affect the operationof the plan within one year followingthe date of correction.

• Relief limiting the amount currentlyincludible in income and the additionaltaxes under § 409A for certain docu-ment failures if correction of the failureaffects the operation of the plan withinone year following the date of correc-tion.

• Relief permitting correction of cer-tain document failures without currentincome inclusion or additional taxesunder § 409A, if the plan is the ser-vice recipient’s first plan of that type(disregarding any plans not subjectto § 409A or any plans under whichall deferred amounts have previouslybeen paid or forfeited) and the failureis corrected within a limited periodfollowing adoption of the plan.

• Transition relief permitting correctionsof certain document failures withoutcurrent income inclusion or additionaltaxes under § 409A, if the documentfailure is corrected by December 31,2010, and any operational failures re-sulting from the document failure arealso corrected in accordance with No-tice 2008–113, 2008–51 I.R.B. 1305,by December 31, 2010.

This notice also clarifies certain aspectsof Notice 2008–113, which addresses cer-tain failures of nonqualified deferred com-pensation plans to comply with § 409A inoperation (operational failures), includingclarification of:

• The application of the subsequent yearcorrection method to late payments ofamounts deferred.

• The calculation of the amount thatmust be paid to the service provideras a correction of a late payment ofan amount deferred under a plan ifthe payment would have been made inproperty, such as shares of stock.

• The calculation of the amount thatmust be repaid by the service provideras a correction of an early payment ofan amount deferred under a plan if the

early payment was made in property,such as shares of stock.

II. BACKGROUND

Section 409A was added to the Code by§ 885 of the American Jobs Creation Actof 2004, Public Law 108–357 (118 Stat.1418). Section 409A generally providesthat, unless certain requirements are met,amounts deferred under a nonqualified de-ferred compensation plan for all taxableyears are currently includible in gross in-come to the extent not subject to a substan-tial risk of forfeiture and not previously in-cluded in gross income. Section 409A fur-ther provides that amounts includible in in-come under § 409A are subject to two ad-ditional taxes, a 20% additional tax and anadditional tax calculated as the underpay-ment interest determined at a premium in-terest rate that would have been due hadthe amounts deferred been includible in in-come when first deferred or first no longersubject to a substantial risk of forfeiture,whichever is later. Thus, a failure to com-ply with the requirements of § 409A mayhave severely adverse tax consequences.Final regulations under § 409A were is-sued by the IRS and the Treasury Depart-ment on April 17, 2007 (T.D. 9321, 2007–1C.B. 1123 [72 Fed. Reg. 19234]), effec-tive for taxable years beginning on or af-ter January 1, 2009 (see Notice 2007–86,2007–2 C.B. 990).

A nonqualified deferred compensationplan must comply with the requirementsof § 409A both in form and in opera-tion. On December 3, 2008, the TreasuryDepartment and the IRS issued Notice2008–113, setting forth guidance permit-ting the correction of certain operationalfailures, and providing transition relief

2010–3 I.R.B. 276 January 19, 2010

limiting the amount includible in incomeunder § 409A(a) for certain operationalfailures involving limited amounts. Notice2008–113 also provided guidance limitingthe amount includible in income under§ 409A(a) for certain operational failuresinvolving amounts that exceeded the limit.

Notice 2008–113 requested commentswith respect to potential guidance permit-ting the correction of document failures. Inresponse, the Treasury Department and theIRS received various comments request-ing that relief also be available for docu-ment failures and containing suggestionsfor corrections. The Treasury Departmentand the IRS have reviewed all of the com-ments submitted and are issuing this no-tice to provide relief for numerous types ofdocument failures.

The Treasury Department and the IRSare issuing this notice primarily to ad-dress document failures. Notice 2008–113remains in effect to address operationalfailures. However, § XIII of this noticeprovides certain modifications to Notice2008–113, clarifying certain aspects ofthat notice, that are effective for serviceprovider taxable years beginning on orafter January 1, 2010. For further infor-mation regarding the effective dates, see§ XIV of this notice.

III. ELIGIBILITY REQUIREMENTSAND EFFECT OF CORRECTION

A. In General

A taxpayer is not eligible for the re-lief provided in §§ V through XI of thisnotice for a document failure unless thetaxpayer demonstrates that all of the fol-lowing requirements have been met: (i)the requirements of this § III applicable tothe document failure; (ii) the requirementsof the particular section in §§ V throughXI of this notice providing the correctionmethod and relief applicable to the docu-ment failure; and (iii) the information andreporting requirements of § XII of this no-tice. The taxpayer claiming the relief hasthe burden of demonstrating eligibility forthe relief and that each of the requirementsin the preceding sentence have been met.A taxpayer’s eligibility for the relief pro-vided in this notice is subject to examina-tion by the IRS.

B. Correction of Plans ContainingSubstantially Similar Document Failures

The relief provided in §§ V through XIof this notice is not available with respectto a plan for which a document failure hasbeen identified and corrected unless, in ad-dition to satisfying the requirements of theapplicable sections of this notice, the ser-vice recipient takes commercially reason-able steps to: (i) identify all other non-qualified deferred compensation plans thathave a document failure that is substan-tially similar to the document failure ini-tially identified and corrected (regardlessof whether the other plan provides deferredcompensation for any of the same serviceproviders that participate in the plan withthe initially identified and corrected docu-ment failure) and (ii) correct all such fail-ures in a manner consistent with this no-tice.

C. Relief not Available to ServiceProviders and Certain Service RecipientsUnder Examination

Except where specifically noted inthis notice, the relief provided in §§ Vthrough XI of this notice is not availablefor a service provider participating in anonqualified deferred compensation planif a federal income tax return of the ser-vice provider or a federal tax return ofthe service recipient is under examinationwith respect to nonqualified deferred com-pensation for any taxable year in whichthe document failure existed. For thispurpose, an individual service provideror service recipient is treated as underexamination with respect to nonqualifieddeferred compensation if the individualis under examination with respect to theindividual’s federal income tax return (forexample, Form 1040) for the taxable year.Any other type of service provider or ser-vice recipient is treated as under examina-tion with respect to nonqualified deferredcompensation if the service provider orservice recipient receives written notifica-tion (for example, by examination plan,information document request (IDR), ornotification of proposed adjustments orincome tax examination changes) fromthe examining agent(s) specifically cit-ing nonqualified deferred compensationas an issue under consideration. See§ XI.D for certain transition relief through

December 31, 2011, regarding federaltax returns of non-individual servicerecipients under examination.

A service provider and service recipientwill not fail to qualify for relief, however,merely because the service provider or ser-vice recipient becomes under examinationwith respect to nonqualified deferred com-pensation after the date of correction, if allof the requirements of this notice for re-lief are otherwise satisfied and the serviceprovider and the service recipient were notunder examination on the date of the cor-rection. For example, assume a documentfailure exists during 2010 and 2011, butnot in any prior years. The date of correc-tion of the document failure is January 1,2012, at which time the federal tax returnsof the service provider and service recipi-ent for 2010 and 2011 are not under exam-ination. Provided that the service recipientand service provider otherwise satisfy therequirements of this notice (including anyrequirements of inclusion of income, pay-ment of additional taxes, reporting and tak-ing commercially reasonable steps to iden-tify and correct all plans with substantiallysimilar document failures), the documentfailure will remain eligible for the relief sothat for purposes of any subsequent exam-ination of the service provider’s or the ser-vice recipient’s federal tax returns for 2010and 2011, the failure will be treated as cor-rected.

D. Relief not Available for IntentionalFailures or Listed Transactions

The relief provided in §§ V through XIof this notice applies only to failures tocomply with the plan document require-ments under § 409A(a) and § 1.409A–1(c)that are inadvertent and unintentional. Inaddition, the relief provided in this noticeis not available if the failure is directlyor indirectly related to participation in anylisted transaction under §1.6011–4(b)(2)).

E. Amounts Included in Income as aCondition of Correction

If the applicable section of this noticeunder which the correction is made re-quires that the service provider includean amount deferred in income under§ 409A(a), the relief provided under suchsection is conditioned upon (i) the ser-vice provider including the amount inincome on the appropriate tax return and

January 19, 2010 277 2010–3 I.R.B.

paying all applicable Federal taxes, in-cluding the additional 20% tax under§ 409A(a)(1)(B)(i)(II) but not the premiuminterest tax under § 409A(a)(1)(B)(i)(I),and (ii) the service recipient complyingwith the information statement reportingrequirements set forth in the applicablesection of this notice (for example, FormW–2 reporting). Provided that the serviceprovider has actually included the amountin income under § 409A(a) pursuant tothe applicable section of this notice andpaid the additional tax due on such amountunder § 409A(a)(1)(B)(i)(II), the amountincluded in income will be treated for allsubsequent periods as an amount previ-ously included in income for purposes of§ 409A(c) and the regulations thereunder.

If the applicable section of this noticeunder which the correction is made re-quires that the service provider includean amount deferred in income under§ 409A(a), such as 50% of the amount de-ferred under the plan, the amount deferredto which the income inclusion requirementapplies is only the amount deferred towhich the corrected plan provision applies,and the calculation of the amount deferredis based upon the plan provision in effectimmediately before the correction.

F. Date of Correction; Income InclusionUpon Correction of Multiple Failures

For purposes of this notice, the date ofcorrection of a document failure is the lat-est of the date on which the correction isadopted, the date on which the correctionis effective and the date on which the cor-rection is set forth in writing in one or moredocuments. Under many sections of thisnotice the most favorable relief is availableonly if certain events do not occur withinone year following the date of the correc-tion. For purposes of applying this notice,one year following a date means the pe-riod beginning on such date and ending onthe first anniversary of such date. For ex-ample, one year following April 1, 2010,means April 1, 2011.

Special rules apply if two or more doc-ument failures that apply to the same de-ferred amount under a plan are corrected,and two or more of the sections of this no-tice pursuant to which the corrections aremade with respect to that deferred amountrequire as a condition of the correction thatthe service provider include a percentage

of the amount deferred in income under§ 409A. In that situation, if two or moresections of this notice would require a per-centage of the amount deferred to be in-cluded in income in the same taxable year,the service provider is only required to in-clude in income, and the service recipientis only required to report as income to theservice provider, the percentage of the de-ferred amount required to be included inincome under the section of this notice pur-suant to which a correction is made withrespect to that deferred amount that re-quires the largest percentage to be includedin income for that taxable year. For exam-ple, if application of each of two documentcorrections to the same deferred amountwould require that the service provider in-clude 50% of the deferred amount subjectto the corrected plan provision in incomeunder § 409A during the same taxable yearas a condition of each correction, the ser-vice provider will only be required to in-clude 50% of the deferred amount in in-come under § 409A (and not 100%).

If, in the situation described in the firstsentence of the preceding paragraph, theapplicable sections of this notice would re-quire a percentage of the amount deferredto be included in income under § 409A asa condition of correction in two or moretaxable years, then, solely for purposes ofdetermining the amount deferred that mustbe included in income under § 409A as acondition of correction in a taxable yearafter the first taxable year in which suchan inclusion is required as a condition ofcorrection, the service provider may treattwo times the amount included in incomeunder § 409A as a condition of correctionin a prior taxable year with respect to theamount deferred as previously included inincome. For example, assume that an em-ployee is entitled to a payment upon a sep-aration from service that includes any re-duction in the level of services provided,payable at the discretion of the employerover a period not to exceed three years.On April 1, 2011, the employer correctsthe definition of the term “separation fromservice” but the employee has a reduc-tion in services on June 1, 2011 (withinone year of the correction) so that the em-ployee is required to include in income un-der § 409A as a condition of correction50% of the $100x deferred under the plan,or $50x. On April 1, 2012, the employercorrects the impermissible discretion with

respect to the payment schedule follow-ing the permissible payment event. Theemployee separates from service on Au-gust 1, 2012 (within one year of the cor-rection) so that the employee is required toinclude in income under § 409A as a con-dition of correction 50% of the amount de-ferred under the plan subject to the provi-sion. However, solely for this purpose, theemployee is entitled to treat two times the$50x included in income during 2011, or$100x, as previously included in income.Assume that the amount deferred under theplan for 2012 subject to the provision is$150x. Solely for purposes of determiningthe amount that must be included as a con-dition of correction, the $150x is reducedby the $100x deemed to be previously in-cluded in income. Accordingly, the em-ployee must include $25x (50% x 50x) inincome under § 409A as a condition of thesecond correction.

G. Linked Plans and Stock Rights notEligible for Relief

Except as specifically provided in§ XI.B of this notice, the relief providedunder this notice does not apply to a planto the extent that the document failureis due to the amount deferred under theplan being determined by, or the time orform of payment being affected by, theamount deferred under, or the paymentprovisions of, one or more other non-qualified deferred compensation plans orone or more qualified plans (as defined in§ 1.409A–1(a)(2)). In addition, the reliefprovided under this notice does not applyto a stock right. For certain relief with re-spect to a stock right with an exercise pricethat is less than the fair market value ofthe underlying shares of stock at the dateof grant, see Notice 2008–113, §§ IV.Dand V.E.

H. New or Modified Payment EventsRequired as a Condition of Correction

Many of the corrections available underthis notice are conditioned upon the planbeing amended to adopt a new or modi-fied payment event for an amount deferred.Nothing in these conditions is intended toprohibit or alter the ability of the plan tobe modified at any time to include death,disability or an unforeseeable emergencyas a payment event (see § 1.409A–3(i)(3)),

2010–3 I.R.B. 278 January 19, 2010

or to adopt any of the permissible excep-tions to the rule prohibiting acceleratedpayments (see § 1.409A–3(j)(4)). In ad-dition, nothing in these conditions is in-tended to prohibit or alter the ability to pro-vide for a subsequent deferral election un-der the plan that complies with the require-ments of § 409A, provided that the subse-quent deferral election requirements apply,both in form and in operation, to the de-ferred amount based upon the plan provi-sions after correction under this notice.

I. Effect of Correction

If a document failure is eligible for cor-rection under, and is fully corrected in ac-cordance with, the requirements of this§ III, the applicable provisions of §§ Vthrough XI of this notice (including anyrequirement of a service recipient to re-port, and a service provider to include anamount in income under § 409A(a) andpay all applicable taxes, including an ad-ditional tax under § 409A(a)), and the re-porting requirements of § XII of this no-tice, then, except as otherwise provided inthis notice, the service recipient will not berequired to report, and the service providerwill not be required to include any amountas income under § 409A(a) for any taxableyear of the service provider before the tax-able year in which the document failure isproperly corrected, solely as a result of thedocument failure being in the written planduring any such earlier year. For purposesof this notice, a plan provision is fully cor-rected only if the plan provision, and anysubstantially similar plan provision, hasbeen corrected in accordance with this no-tice with respect to all deferred amountsunder the plan to which the plan provision,or the substantially similar plan provision,applies (other than deferred amounts notsubject to § 409A, such as grandfatheredamounts as defined under § 1.409A–6).

This notice does not address the appli-cation of any other provision of the Codeor any other rule of law or tax doctrine,including the constructive receipt doctrineand the economic benefit doctrine, to anonqualified deferred compensation plandue to the plan provisions either before oras a result of the correction of a plan provi-sion under this notice, or due to the opera-tion of the plan either before or as a resultof the correction of a plan provision underthis notice.

J. References to the Internal RevenueCode; Certain Terms

For purposes of this notice, referencesto sections of the Code include referencesto the regulations and any other applicableguidance thereunder. For purposes of thisnotice, the term “payment event” refers toan event set forth in the applicable plan,the occurrence of which will result in thepayment of compensation, the terms “per-missible payment event” or “permissiblepayment event under § 409A” refer to anyevent the occurrence of which will resultin the payment of compensation that sat-isfies the requirements of § 409A(a) and§ 1.409A–3(a), and the terms “impermissi-ble payment event” or “impermissible pay-ment event under § 409A” refer to anyevent the occurrence of which will resultin the payment of compensation that doesnot satisfy the requirements of § 409A(a)and § 1.409A–3(a).

As provided by § 1.409A–1(c)(3)(viii),the plan aggregation rules of§ 1.409A–1(c)(2)(i) do not applyto the written plan requirements of§ 1.409A–1(c)(3), so that deferrals of com-pensation under an agreement, method,program, or other arrangement that failsto meet the requirements of § 409A solelydue to a failure to meet the written planrequirements of § 1.409A–1(c)(3) are notaggregated with deferrals of compensa-tion under other agreements, methods,programs, or other arrangements thatmeet such requirements. Accordingly, forpurposes of this notice (other than § X and§ XIII of this notice, and any references tothe correction of an operational failure),the terms “arrangement”, “plan” and“nonqualified deferred compensationplan” refer to a plan or arrangementsubject to the requirements of § 409A(a),without reference to the aggregation rulesof § 1.409A–1(c)(2)(i).

References in this notice to amountsdeferred under a plan in the context ofa dollar amount deferred (for example,a requirement to include in income un-der § 409A(a) a specified percentage ofthe amount deferred under the plan) referto the dollar amount determined underapplicable guidance. As of January 5,2010, the applicable guidance for this pur-pose is Notice 2008–115, 2008–52 I.R.B.1367, which also permits taxpayers torely upon the proposed regulations under

§ 1.409A–4, issued on December 8, 2008(REG–148326–05, 2008–51 I.R.B. 1325[73 Fed. Reg. 74380]). Under this guid-ance, the amount deferred under a plan isdetermined as of the last day of the serviceprovider’s taxable year. If an amount isrequired to be included in income as acondition of a document correction with-out regard to whether a subsequent eventoccurs, the amount deferred under the planis determined as of the last day of the ser-vice provider’s taxable year during whichthe correction is made. If an amount isrequired to be included in income as acondition of a document correction onlyif an event occurs within a certain periodof time following the document correction(generally one year), the amount deferredunder the plan is determined as of the lastday of the service provider’s taxable yearduring which the event occurs.

References in this notice to the applica-tion of a corrected plan provision refer tothe change in the operation of the plan thatresults from compliance with the correctedplan provision in lieu of the pre-correctionplan provision. Nothing in this notice isintended to imply that compliance with acorrected plan provision is elective or thata failure to comply with a corrected planprovision would not otherwise be an oper-ational failure under § 409A(a).

IV. APPLICATION OF § 409A(a)TO CERTAIN AMBIGUOUS PLANTERMS

A. Terms Providing for a Payment “AsSoon as Practicable” or SubstantiallySimilar Language Following a PermissiblePayment Event

1. Eligibility

This section applies to a plan provi-sion that sets forth a permissible paymentevent under § 409A(a) and § 1.409A–3(a),but requires payment “as soon as reason-ably practicable” following the permissi-ble payment event, or under conditionssubstantially similar to as soon as practi-cable following the permissible paymentevent.

2. Application of § 409A

Except as otherwise provided in this§ IV.A, a plan provision does not fail to sat-isfy the requirement to designate a permis-

January 19, 2010 279 2010–3 I.R.B.

sible payment event under § 1.409A–3(b),and does not otherwise result in a docu-ment failure, merely because it includes aphrase described in § IV.A.1 of this notice.For purposes of § 1.409A–3(d) (rules re-garding the timeliness of payments), andthe application of the subsequent defer-ral rules and anti-acceleration rules under§ 409A, the permissible payment event un-der § 409A(a) is treated as the paymentdate. Thus, if the payment is not made bythe later of the end of the service provider’staxable year in which the permissible pay-ment event occurs or the fifteenth day ofthe third calendar month following the per-missible payment event, the failure to paywill constitute an operational failure unlessthe service provider can demonstrate thatthe delay qualifies for a timeliness excep-tion under the regulations (for example, thepayment would have jeopardized the abil-ity of the service recipient to continue as agoing concern pursuant to § 1.409A–3(d)).The resulting operational failure may qual-ify for the correction of operational fail-ures involving late payments pursuant toNotice 2008–113 provided that all otherapplicable requirements of that notice aremet. Notwithstanding the foregoing, if aplan contains a provision otherwise eligi-ble for this section and the service recipi-ent has a pattern or practice of making latepayments that do not qualify for a timeli-ness exception under the regulations, thatplan and any other plan of the service re-cipient containing language similar to thatprovision will be treated as having failedto set forth a permissible payment date(regardless of whether the other plan pro-vides deferred compensation to any ser-vice provider that participates in the planotherwise eligible for this section).

B. Permissible Payment Event with noDefinition or an Ambiguous Definition

1. Eligibility

This section applies to a plan provisionthat designates a payment event but doesnot define the payment event or has an am-biguous definition of the payment event,if the plan provision could reasonably beinterpreted to be compliant with § 409A,but could also reasonably be interpreted toinclude an impermissible payment eventunder § 409A (or to not include eventsthat must be included in the definition of a

permissible payment event under § 409A).For example, the use of the term “termina-tion of employment” as a payment eventin a plan could be interpreted to mean onlyevents that constitute a separation fromservice for purposes of § 1.409A–3(a)(1),or also to include events that do not consti-tute a separation from service for purposesof § 1.409A–3(a)(1) (and to exclude eventsthat must be included in the definition ofa separation from service). Similarly, theuse of the term “acquisition” of the ser-vice recipient as a payment event in a plancould be interpreted to mean only eventsthat constitute a change in control eventunder § 1.409A–3(a)(5), or also to includeevents that do not constitute a change incontrol event under § 1.409A–3(a)(5). Ifthe plan also contains a provision requir-ing that the term be interpreted to complywith the requirements of § 409A (or a planprovision with the same effect), this sec-tion does not apply because the provisionis not ambiguous and complies with the re-quirements of § 409A and § 1.409A–3(a).

If the particular plan provision has beeninterpreted by the service recipient, on orafter January 1, 2009, such that a pattern orpractice of the application of a specific in-terpretation has been established that doesnot satisfy the requirements of § 409A, theplan provision will no longer be treated asambiguous either with respect to the plansto which the service recipient has appliedthe interpretation, or any other plan of theservice recipient with substantially similarlanguage (regardless of whether the plansprovide deferred compensation to the sameservice provider or service providers), andtherefore will not be eligible for the reliefin this § IV.B (but see § V of this notice).Similarly, if the particular plan provisionhas been interpreted by a court with juris-diction over the enforcement of the con-tract, the term will no longer be treatedas ambiguous either with respect to theplan at issue in the decision or with re-spect to any other plan of the service re-cipient with substantially similar languageover which the same court has jurisdiction(regardless of whether the plans providedeferred compensation to the same serviceprovider or service providers). If the defi-nition of the payment event in the plan ex-plicitly includes events that would not con-stitute a permissible payment event under§ 409A, or explicitly excludes events thatare required for the payment event to be

treated as a permissible payment event un-der § 409A, this section does not apply (butsee § V of this notice).

2. Application of § 409A

Except as otherwise provided in this§ IV.B, a payment provision eligible forthis section will not result in the planfailing to satisfy the requirements of§ 409A(a) and § 1.409A–3(a). If anamount is paid pursuant to the provisionin a manner that is not compliant with therequirements of § 409A(a) (or, pursuantto the provision, the plan fails to makea payment of an amount required to bepaid to comply with the requirements of§ 409A(a)), that payment (or failure tomake a payment) may be treated as anoperational failure eligible for relief underNotice 2008–113 despite the interpretationof the written plan provision in a man-ner that does not comply with § 409A(a),provided that the plan is amended in accor-dance with this section before the end ofthe service provider’s taxable year duringwhich the operational failure is correctedin accordance with Notice 2008–113.Notwithstanding the foregoing, if the factsand circumstances indicate that the ser-vice recipient has intentionally used anambiguous term for a payment event in aplan, the plan and any other plan of theservice recipient with the same or sub-stantially similar language (regardless ofwhether the plans include any of the sameservice providers) will not be eligible forrelief under this section. An amendmentsatisfies the requirements of this section ifthe amendment either: (i) adds languagerequiring that the terms of the plan beinterpreted as necessary to comply withthe requirements of § 409A(a), or (ii) setsforth explicit definitions of the terms of theplan that comply with the requirements of§ 409A(a) (including by cross-reference tothe relevant regulations under § 409A(a)),provided that in either case, except asnecessary to satisfy the requirements of§ 1.409A–3(a), the amendment may nothave the effect of either expanding thedefinition to include as a payment eventany event that was not a payment eventunder the plan before the amendment,or narrowing the definition to eliminateas a payment event any event that was apayment event under the plan before theamendment. For purposes of applying the

2010–3 I.R.B. 280 January 19, 2010

previous sentence, it is assumed that nopermissible alternative definitions weredesignated under the plan (for example, apermissible alternative definition of sepa-ration from service under § 1.409A–1(h))other than those designations timely madeand explicitly provided in the plan beforethe correcting amendment.

C. Examples

The following examples illustrate theprovisions of this § IV.

Example 1 (as soon as reasonably practicablepayment provision). Employee A is an employee ofEmployer who participates in a plan that provides fora lump sum payment “as soon as reasonably practi-cable” following the earliest of separation from ser-vice, death, disability or a change in control of Em-ployer, but does not specify any other time limit forwhen payment must be completed. The definitionsof the payment events under the plan satisfy the re-quirements of § 1.409A–3(a). A change in controlevent occurs with respect to Employer on December1, 2010, resulting in Employee A being entitled to alump sum payment under the plan.

Conclusion: The plan provision providing forpayment “as soon as reasonably practicable” follow-ing the payment event does not cause the plan tofail to designate a permissible payment date under§ 409A and § 1.409A–3(b). However, if the amountis not actually paid to Employee A by the later of theend of the 2010 calendar year or the fifteenth dayof the third calendar month following the change incontrol event (in this case, March 15, 2011), and thelate payment does not satisfy the requirements of atimeliness exception under the § 409A regulations,the plan will have an operational failure with respectto the payment to Employee A that may be eligiblefor correction under Notice 2008–113.

Example 2 (ambiguous definition of paymentevent). Employee B is an employee of Employerwhose employment agreement with Employer pro-vides for payment of $100x upon Employee B’s“termination of employment.” The employmentagreement does not define what events constitute a“termination of employment” and does not includea provision that the terms of the agreement mustbe interpreted in a manner consistent with § 409A.To date, employees of Employer with substantiallysimilar plan provisions have never reduced theiremployment to part-time and have only been paidupon an event that constitutes a complete cessationof services to Employer with no anticipated return toproviding services to Employer. Consequently, thereis no pattern or practice of paying amounts uponpayment events that would not constitute separationsfrom service under § 409A or § 1.409A–3(a)(1), ornot paying amounts upon payment events that wouldconstitute separations from service under § 409A(a)and § 1.409A–3(a)(1). There is no indication thatthe term was intentionally left vague. On April 1,2010, before any amendment of the employmentagreement, Employee B ceases providing services toEmployer with no anticipated return and Employerdetermines that Employee B has become entitled to

the payment of $100x. Employer pays Employee Bthe $100x on April 1, 2010.

Conclusion: The plan provision providing forpayment upon a “termination of employment” willnot cause the employment agreement to fail to sat-isfy the document requirements of § 409A(a) and§ 1.409A–3(a) to the extent the term is not inter-preted to provide for payment under circumstancesthat would cause the employment agreement tofail to satisfy the requirements of § 409A(a) and§ 1.409A–3(a) in operation. The agreement may beamended at any time to provide either (i) the planprovision must be interpreted to comply with therequirements of § 409A, or (ii) an explicit definitionof termination of employment that qualifies as aseparation from service under § 1.409A–3(a)(1),provided that in either case the amendment may nothave the effect of either expanding the definition toinclude as a payment event any event that was not apayment event under the plan before the amendment,or narrowing the definition to eliminate as a paymentevent any event that was a payment event under theplan before the amendment, except as necessary tosatisfy the requirements of § 1.409A–3(a)(1) (appliedas if no alternative definition of separation from ser-vice permitted under § 1.409A–1(h) was designatedunder the plan other than a designation timely-madeand explicitly provided in the pre-correction planprovision). The payment of $100x on April 1, 2010,will not be an operational failure and will not re-sult in the employment agreement being treated asfailing to satisfy the requirements of § 409A(a) and§ 1.409A–3(a)(1).

Example 3 (ambiguous definition of paymentevent): The same facts as in Example 2, except thatthe employment agreement is between Employerand Employee C. Employee C provided, on average,40 hours of service to Employer over the 36-monthperiod ending on April 1, 2010. On April 1, 2010,before any amendment of the agreement, EmployeeC changes status from an employee to an indepen-dent contractor and is expected to provide 20 hoursof service per week to Employer, which would notbe a separation from service under § 1.409A–3(a)(1).Employer determines that under the agreementEmployee C is not entitled to a payment of $100xbecause Employee C has not had a separation ofservice from Employer.

Conclusion: The plan provision providing forpayment upon “termination of employment” willnot cause the employment agreement to fail to sat-isfy the document requirements of § 409A(a) and§ 1.409A–3(a) to the extent the term is not interpretedto provide for payment under circumstances thatwould cause the employment agreement to fail to sat-isfy the requirements of § 409A(a) and § 1.409A–3(a)in operation. The agreement may be amended at anytime to provide either (i) that the plan provision mustbe interpreted to comply with the requirements of§ 409A, or (ii) an explicit definition of terminationof employment that qualifies as a separation fromservice under § 1.409A–3(a)(1), provided that thedefinition does not add a payment event that wouldnot have been a payment event under the pre-cor-rection plan provision, or remove a payment eventthat would have been a payment event under thepre-correction plan provision, except as necessary tosatisfy the requirements of § 1.409A–3(a)(1) appliedas if no alternative definition of separation from ser-

vice permitted under § 1.409A–1(h) was designatedunder the plan, other than a designation timely madeand explicitly provided in the pre-correction planprovision.

V. CORRECTION OFIMPERMISSIBLE DEFINITIONSOF OTHERWISE PERMISSIBLEPAYMENT EVENTS

A. Impermissible Definition of Separationfrom Service

1. Eligibility

This section applies to a plan provi-sion that provides for a payment upon anevent involving a change in the relation-ship between the service provider and theservice recipient related to the level ofservices provided by the service provider(for example, a change from full-time topart-time employment), the capacity inwhich the service provider provides theservices to the service recipient (for exam-ple, a change in status from an employeeto an independent contractor), or the re-cipient of the services provided by theservice provider (for example, a changefrom employment by one subsidiary toemployment by another subsidiary) thatdoes not qualify as a separation from ser-vice under § 1.409A–3(a)(1) but is treatedas a payment event under the plan. Thissection also applies to a plan provisionthat fails to provide for a payment uponan event that is a separation from ser-vice under § 1.409A–3(a)(1) (withoutreference to any permissible alternativedefinition of separation from service un-der § 1.409A–1(h) that may be designatedunder a plan).

2. Correction

A plan provision eligible for this sec-tion may be corrected in accordance withthis section before the date an event occursthat would not be a separation from serviceunder § 1.409A–3(a)(1) but is a paymentevent under the plan, or the date an eventoccurs that is a separation from service un-der § 1.409A–3(a)(1) but is not a paymentevent under the plan. The plan may becorrected by amending the plan to providefor a payment event that satisfies the re-quirements of § 1.409A–3(a)(1), providedthat the amendment may not have theeffect of either expanding the definition

January 19, 2010 281 2010–3 I.R.B.

to include as a payment event any eventthat was not a payment event under theplan before the amendment, or narrowingthe definition to eliminate as a paymentevent any event that was a payment eventunder the plan before the amendment,except as necessary to satisfy the re-quirements of § 1.409A–3(a)(1) (withoutreference to any permissible alternativedefinition of separation from service un-der § 1.409A–1(h) that may be designatedunder a plan). The amendment must beeffective immediately. If, within one yearfollowing the date of correction, an eventoccurs that is not a separation from serviceunder § 1.409A–3(a)(1) but would haverequired payment under the pre-correc-tion plan provision, or that is a separationfrom service under § 1.409A–3(a)(1) butwould not have required payment underthe pre-correction plan provision, and re-sults in the corrected plan provision beingapplied to avoid a payment that wouldhave been due under the pre-correctionplan provision, or to make a paymentthat would not have been due under thepre-correction plan provision, 50% of theamount deferred under the plan to whichthe pre-correction plan provision appliedmust be included in income under § 409Aby the affected service provider in the ser-vice provider’s taxable year within whichthe event occurs.

B. Impermissible Definition of a Changein Control Event

1. Eligibility

This section applies to a provision of aplan of a service recipient that provides, fora service provider with respect to whomthat service recipient satisfies the require-ments of § 1.409A–3(i)(5)(ii) (identifica-tion of relevant corporations), for a pay-ment upon the sale of some or all of theequity or assets of the service recipient(other than specifically identified assets ora specifically identified type of assets), ora change in the effective control of the ser-vice recipient, but that includes events thatwould not qualify as a change in controlevent under § 1.409A–3(a)(5). For thispurpose, with respect to a parent corpo-ration or other parent entity, a paymentevent based upon the sale of an identified

subsidiary constitutes the sale of a speci-fied asset, and accordingly employees ofthe parent corporation would not be eligi-ble for the relief provided in this section(though employees of the subsidiary cor-poration may be eligible for the relief). Inaddition, the requirement of a public offer-ing of securities, securing of financing, orsimilar event does not constitute a sale ofsome or all of the equity or assets of a ser-vice recipient, or a change in effective con-trol of a service recipient, for purposes ofthis section.1

2. Correction

A plan provision eligible for this sec-tion may be corrected in accordance withthis section before the date an event occursthat is not a change in control event under§ 1.409A–3(a)(5) but is a payment eventunder the plan. The plan may be correctedby amending the plan to provide for achange in control event that satisfies therequirements of § 1.409A–3(a)(5), pro-vided that the amendment may not causean event that was not a payment eventunder the original terms of the plan tobecome a payment event under the plan.The amendment must be effective imme-diately. If, within one year following thedate of correction, a transaction occursthat is not a change in control event un-der § 1.409A–3(a)(5) and results in thecorrected plan provision being applied toavoid a payment that would have been dueunder the pre-correction plan provision,25% of the amount deferred under the planto which the pre-correction plan provi-sion applied must be included in incomeunder § 409A(a) by the affected serviceprovider in the service provider’s taxableyear within which the event occurs.

C. Impermissible Definition of Disability

1. Eligibility

This section applies to a plan provisionthat provides for a payment event relatedto the service provider’s illness or otherincapacity and resulting inability to per-form the service provider’s duties as a ser-vice provider to the service recipient, butthat does not qualify as disabled withinthe meaning of §§ 409A(a)(2)(A)(ii) and

409A(a)(2)(C) and §§ 1.409A–3(a)(2) and1.409A–3(i)(4).

2. Correction

A plan provision eligible for this sec-tion may be treated by the service recipientand service provider as not failing to sat-isfy the requirements of § 409A(a) and§ 1.409A–3(a)(2) before an event oc-curs that is not a disability within themeaning of §§ 409A(a)(2)(A)(ii) and409A(a)(2)(C) and § 1.409A–3(a)(2)but is a payment event under the plan.The plan may be corrected by amend-ing the plan provision either to removethe payment event or to define the pay-ment event as a disability within themeaning of §§ 409A(a)(2)(A)(ii) and409A(a)(2)(C) and § 1.409A–3(a)(2). Theamendment must be effective immedi-ately. The plan may be corrected in thesame manner after an event occurs thatis not a disability within the meaning of§§ 409A(a)(2)(A)(ii) and 409A(a)(2)(C)and § 1.409A–3(a)(2) but is a paymentevent under the plan, but only if the entireamount, if any, paid under the plan dueto the event would be eligible for correc-tion under Notice 2008–113 if the planwere treated as having had a compliantplan provision regarding the disabilitypayment, and the payment is treated as anoperational failure and is corrected underNotice 2008–113.

D. Examples

The following examples illustrate theprovisions of this § V. For each example,assume that the employee and employerare eligible to correct the impermissibleprovision under § III of this notice at allrelevant times.

Example 1 (impermissible definition of separa-tion from service). Employer consists of one parentcorporation and two 80%-owned subsidiaries. Em-ployee D is an employee of the parent corporationwho participates in a plan providing for $100x whenEmployee D separates from service from the parentcorporation, defined to be a separation from serviceunder § 1.409A–3(a)(1) except that the term also in-cludes a transfer from employment by the parent cor-poration to employment by either of the subsidiaries.On January 10, 2011, Employee D transfers from theparent corporation to a subsidiary corporation.

Conclusion: Because the plan provision was notcorrected before Employee D transferred from the

1 However, until further guidance is issued, for purposes of identifying and correcting failures eligible for this section, taxpayers may apply the guidance provided in Section III.G of thePreamble to the final regulations issued under § 409A regarding application of change in control events by analogy to partnerships.

2010–3 I.R.B. 282 January 19, 2010

parent corporation to a subsidiary corporation, re-gardless of whether Employee D is paid $100x, theplan fails to satisfy the requirements of § 409A(a) and§ 1.409A–3(a)(1) for 2011 and all previous years inwhich the plan contained that plan provision, and Em-ployee D must include amounts in income and pay theadditional taxes under § 409A(a) accordingly.

Example 2 (impermissible definition of separa-tion from service). The same facts as in Example 1,except that the plan is with Employee E, instead ofEmployee D, and Employee E does not transfer em-ployment on January 10, 2011. On March 1, 2011,Employer amends the plan to remove a transfer fromthe parent corporation to either of the subsidiaries asa separation from service payment event under theplan. On July 1, 2011, Employee E transfers employ-ment from the parent corporation to one of the sub-sidiary corporations.

Conclusion: Employer and Employee E correctedthe provision before Employee E transferred fromthe parent corporation to one of the subsidiary cor-porations, but Employee E transferred from the par-ent corporation to a subsidiary corporation within oneyear following the date of correction. Provided thatEmployer does not pay Employee E any amount un-der the plan due to the event, Employer reports 50%of the amount deferred under the plan to which thepre-correction plan provision applied as an amountincludible in income under § 409A(a) for 2011 onthe Form W–2, Box 1 and Box 12 using Code Z,for Employee E, and Employee E includes 50% ofthe amount deferred in income under § 409A(a) andpays all applicable Federal taxes, including the ad-ditional 20% tax on such amount (but not the addi-tional premium interest tax), Employee E will not berequired to include in income under § 409A(a) anyfurther amount solely as a result of the pre-correctionplan provision.

Example 3 (impermissible definition of separa-tion from service). The same facts as in Example 2,except that the plan is with Employee F, instead ofEmployee E, and Employee F does not transfer em-ployment on July 1, 2011. On May 1, 2012, Em-ployee F transfers employment from the parent cor-poration to one of the subsidiary corporations.

Conclusion: Employer and Employee F correctedthe provision before Employee F transferred from theparent corporation to one of the subsidiary corpora-tions, and Employee F did not transfer from the par-ent corporation to a subsidiary corporation within oneyear following the date of correction. Provided thatEmployer does not pay Employee E any amount un-der the plan due to the event, Employee F will notbe required to include any amount in income under§ 409A(a) solely as a result of the pre-correction planprovision.

Example 4 (impermissible definition of a changein control payment event). Employee G is an em-ployee of Employer. Employee G participates in aplan that provides for a payment of $100x to Em-ployee G upon the earliest of Employee G attainingage 65, death, or a “change in control” of Employer.The definition of “change in control” under the plandoes not satisfy the definition of a change in con-trol event under § 1.409A–3(a)(5) solely because thedefinition includes an initial public offering of morethan 30% of the stock of Employer. On February 15,2011, at which time Employee G is age 50, Employer

amends the definition of change in control under theplan to delete the occurrence of an initial public of-fering of Employer stock as a “change in control” ofEmployer and does not add any other change in con-trol events that would cause a payment under the plan,regardless of whether the additional event is permis-sible under § 1.409A–3(a)(5). Employer has an initialpublic offering of 33% of Employer stock on July 1,2011.

Conclusion: Employer and Employee G cor-rected the provision before the initial public offering,but the initial public offering occurred within oneyear following the date of correction. Provided thatEmployer does not pay Employee G any amount un-der the plan due to the event, Employer reports 25%of the amount deferred under the plan to which thepre-correction plan provision applied as an amountincludible in income under § 409A(a) for 2011 onthe Form W–2, Box 1 and Box 12 using Code Z, forEmployee G, and Employee G includes 25% of theamount deferred in income under § 409A(a) and paysall applicable Federal taxes, including the additional20% tax on such amount (but not the additional pre-mium interest tax), Employee G will not be requiredto include in income under § 409A(a) any furtheramount solely as a result of the pre-correction planprovision.

Example 5 (impermissible definition of a dis-ability provision). Employee H is an employee ofEmployer who participates in a plan that providesfor payments of $100x to Employee H upon theearlier of Employee H’s separation from service (asdefined under § 1.409A–1(h)), death or disability.The definition of disability requires only that theemployee be unable to continue for a period of sixmonths his or her duties in the employee’s positionof employment at the time of the disability. OnJuly 1, 2011, Employee H suffers an illness thatqualifies as a disability under the plan but does notqualify as a disability under § 1.409A–3(a)(2). OnJuly 15, 2011, Employee H receives a payment of$100x. On August 1, 2011, the plan is amended sothat the definition of disability under the plan wouldqualify as a disability under § 1.409A–3(a)(2). OnSeptember 15, 2011, Employer and Employee Htreat the $100x as an operational failure under Notice2008–113 and Employee H repays Employer the$100x and meets all the other requirements of Notice2008–113.

Conclusion: Because the plan provision definingdisability was corrected and all payments receivedunder the plan due to the impermissible paymentevent were treated as operational failures andcorrected under Notice 2008–113, Employer andEmployee H are not required to treat the plan asfailing to satisfy the requirements of § 409A(a) and§ 1.409A–3(a)(2) solely due to the plan provisiondefining disability.

Example 6 (impermissible definition of a disabil-ity provision). The same facts as in Example 6, exceptthat the plan is between Employer and Employee J,and on July 1, 2011, Employee J does not suffer anillness but instead is injured in a manner that quali-fies as a disability under the plan and as a disabilityunder § 1.409A–3(a)(2).

Conclusion: Because the injury to Employee Jqualifies as both a payment event under the plan and adisability under § 1.409A–3(a)(2), Employee J must

be paid $100x. A failure to pay the $100x would be anoperational failure that may be eligible for correctionunder Notice 2008–113.

VI. CORRECTION OFIMPERMISSIBLE PAYMENTPERIODS FOLLOWING APERMISSIBLE PAYMENT EVENT

A. Payment Periods of Longer than 90Days Following a Permissible PaymentEvent

1. Eligibility

This section applies to a plan provisionthat provides that payment will be madefollowing a permissible payment event un-der § 409A, but designates the period im-mediately following such payment eventduring which payment may be made orcommenced as later than 90 days and ear-lier than 366 days following such paymentevent.

2. Correction

A plan provision eligible for this sectionmay be corrected by amending the planto either remove the period following thepermissible payment event during whichpayment may be made or commenced, orto set forth a period immediately followingthe permissible payment event that com-plies with § 409A(a) and § 1.409A–3(b)(so that it is a period not exceeding 90 daysand the service provider does not have aright to designate the taxable year of pay-ment). If the plan is not so amended beforethe occurrence of the permissible paymentevent with respect to any service provider,but is so amended within a reasonabletime thereafter, the plan may be treated asnot failing to comply with § 409A(a) and§ 1.409A–3(b) (so that the amount is paidwithin 90 days of the payment event andthe service provider does not have a rightto designate the taxable year of payment)for the affected service provider solelydue to the impermissible payment periods,provided that upon the occurrence of thepermissible payment event the plan com-plies in operation with § 1.409A–3(b) withrespect to the affected service provider,and 50% of the amount deferred underthe plan to which the pre-correction planprovision applied is included in incomeunder § 409A(a) by the affected service

January 19, 2010 283 2010–3 I.R.B.

provider in the service provider’s taxableyear within which the permissible pay-ment event occurs.

B. Payment Periods Following aPermissible Payment Event DependentUpon the Service Provider CompletingCertain Employment-Related Actions

1. Eligibility

This section applies to a plan provisionthat provides for payment upon a permissi-ble payment event under § 409A, but con-ditions the payment on an employment-re-lated action of the service provider suchas the execution and submission of a non-competition agreement, a nonsolicitationagreement, or a release of claims.

2. Correction

A plan provision eligible for this sec-tion may be corrected in accordance withthis section before the date an event oc-curs that would be a permissible paymentevent under § 409A to which the provi-sion applies. The plan may be correctedby amending the plan to remove the abil-ity of the service provider to delay or accel-erate the timing of the payment as a resultof the service provider’s actions; provided,however, that if the plan provides for pay-ment (subject to the service provider’s ac-tion) within a designated period follow-ing the permissible payment event under§ 409A that complies with § 1.409A–3(b),the amendment must provide for paymentonly on the last day of such designated pe-riod, and if the plan does not provide forpayment (subject to the service provider’saction) within a designated period follow-ing the permissible payment event under§ 409A that complies with § 1.409A–3(b),the amendment must provide for paymentonly upon a fixed date either 60 or 90 daysfollowing the occurrence of the permissi-ble payment event. The amendment maynot otherwise change the time or form ofpayment.

C. Examples

The following examples illustrate theprovisions of this § VI. For each example,assume that the employee and employerare eligible to correct the impermissibleprovision under § III of this notice at allrelevant times.

Example 1 (Payment Period in Excess of 90 DaysFollowing Permissible Payment Event). EmployeeK is an employee of Employer whose employmentagreement entitles Employee K to $100x upon aseparation from service (defined to comply with§ 1.409A–1(h)), payable within 180 days followingthe separation from service and the exact timingwithin the 180 days is in the discretion of Employer.On February 1, 2011, Employee K has a separa-tion from service from Employer. Employer paysEmployee K $100x on March 1, 2011, providesEmployee K no election regarding the timing of thepayment and amends the employment agreementto comply with § 1.409A–3(b) within a reasonableperiod of time following February 1, 2011.

Conclusion: Employer paid Employee K $100xwithin 90 days following Employee K’s separationfrom service, Employer provided Employee K noelection regarding the timing of the payment andEmployer amended the employment agreement tocomply with § 1.409A–3(b) within a reasonableperiod of time following Employee K’s separationfrom service. Provided that Employer reports 50%of the amount deferred under the plan to which thepre-correction plan provision applied as an amountincludible in income under § 409A(a) for 2011 onthe Form W–2, Box 1 and Box 12 using Code Z, forEmployee K, and Employee K includes the amountin income under § 409A(a) and pays all applicableFederal taxes, including the additional 20% tax onsuch amount (but not the additional premium interesttax), Employee K will not be required to include inincome under § 409A(a) any further amount solelyas a result of the plan provision providing a 180-daypayment period.

Example 2 (impermissible payment period fol-lowing a permissible payment event). The samefacts as in Example 1, except that the agreement isbetween Employer and Employee L, and EmployeeL does not separate from service on March 1, 2011.On March 15, 2011, Employer amends EmployeeL’s employment agreement to provide for paymentwithin 90 days of Employee L’s separation fromservice with the exact timing within the 90 days atthe discretion of the employer. On April 1, 2011,Employee L has a separation from service fromEmployer and Employer pays Employee L $100x onApril 15, 2011, without providing Employee L anyelection regarding the timing of the payment.

Conclusion: Because Employer corrected Em-ployee L’s employment agreement before EmployeeL’s separation from service, Employee L will notbe required to include any amount in income under§ 409A(a) solely as a result of the 180-day paymentperiod under the pre-correction plan provision.

Example 3 (impermissible payment provisionmaking timing of payment after a permissible pay-ment event dependent upon service provider action).Employee M is an employee of Employer whoseemployment agreement entitles Employee M to$100x upon a separation from service (defined tocomply with § 1.409A–1(h)). Employee M’s em-ployment agreement provides that the amount ispayable within 90 days of Employee M’s separationfrom service, but not until Employee M executes andsubmits a release of claims and any period duringwhich Employee M may revoke the release pursuantto applicable law has expired before the end of the90-day period. If Employee M fails to execute the

release the amount is forfeited. On April 1, 2011,Employer and Employee M amend Employee M’semployment agreement to provide for payment ofthe amount on the 90th day following Employee M’sseparation from service provided that Employee Mhas executed and submitted a release of claims andthe statutory period during which Employee M isentitled to revoke the release of claims has expiredon or before that 90th day. Employee M has a sepa-ration from service with Employer on June 1, 2011and Employee M executes and submits a release ofclaims on June 30, 2011. Employer pays Employee$100x on August 30, 2011.

Conclusion: Because Employer and Employee Mcorrected the amendment before Employee M’s sep-aration from service, and because Employer paid theamount in compliance with the amended plan pro-vision, Employee M is not required to include anyamount in income under § 409A solely due to thepre-correction plan provision.

Example 4 (payment provision making timing ofpayment after a permissible payment event depen-dent upon service provider action). Employee N isan employee of Employer whose employment agree-ment entitles Employee N to $100x upon a separationfrom service (defined to comply with § 1.409A–1(h)).Employee N’s employment agreement provides thatthe amount is payable upon Employee N executingand submitting a release of claims and after any pe-riod during which Employee N may revoke the re-lease pursuant to applicable law has expired, but theagreement does not include any time limit for pay-ment. On April 1, 2011, Employer and Employee Namend Employee N’s employment agreement to pro-vide for payment of $100x on the 60th day follow-ing Employee N’s separation from service, providedthat Employee N has executed and submitted a re-lease of claims and the statutory period during whichEmployee N is entitled to revoke the release of claimshas expired on or before that 60th day. Employee Nhas a separation from service with Employer on June16, 2011. Employee N executes and submits a releaseof claims on July 1, 2011. Employer pays EmployeeN $100x on August 15, 2011.

Conclusion: Because Employer and Employee Ncorrected the provision before Employee N’s separa-tion from service, Employee N is not required to in-clude any amount in income under § 409A(a) solelydue to the pre-correction plan provision.

VII. CORRECTION OF CERTAINIMPERMISSIBLE PAYMENTEVENTS AND PAYMENTSCHEDULES

A. Plans with Permissible andImpermissible Payment Events under§ 409A

1. Eligibility

This section applies to a plan provisionthat, with respect to a deferred amount,provides both for one or more permissiblepayment events under § 409A, and one ormore impermissible payment events under

2010–3 I.R.B. 284 January 19, 2010

§ 409A. This section does not apply to apayment event the occurrence of which isin the discretion of the service recipient,such as the right of the service recipientto use its discretion to pay some or all ofan amount upon a different payment event(for example, service recipient discretionto terminate and liquidate the plan), or theservice provider, such as the right of theservice provider to an accelerated paymentupon an agreement to forfeit a portion ofthe amount deferred (a haircut provision).

2. Correction

With respect to a service provider, aplan provision eligible for this section maybe corrected in accordance with this sec-tion before the date a payment event thatis impermissible under § 409A has beenelected as a payment event by the serviceprovider participating in the plan or oth-erwise applies to an amount deferred bythe service provider. The plan may be cor-rected by amending the plan to removesuch impermissible payment event. Forthis purpose, an impermissible paymentevent will not be treated as elected until theservice provider’s election is irrevocableunder the terms of the plan. (Note that al-though this relief is available for a serviceprovider who has not elected an impermis-sible payment event even though other ser-vice providers under a substantially similarplan have elected an impermissible pay-ment event, eligibility for any correctionunder this notice for the service providerswho have elected an impermissible pay-ment event generally requires that the ser-vice recipient take commercially reason-able steps to identify and correct all sub-stantially similar language in other planssponsored by the service recipient, includ-ing with respect to those who have notelected an impermissible payment event.See § III.B of this notice).

With respect to a service provider, tothe extent one or more impermissiblepayment events under a plan provision el-igible for this section has been elected bythe service provider, or otherwise has be-come applicable to the service provider’sdeferred amount, a plan provision eligiblefor this section may be corrected in ac-cordance with this section before the dateany of the impermissible payment eventsoccurs. The plan may be corrected byamending the plan to remove such imper-

missible payment events. The amendmentmust be effective immediately, and if anyof the impermissible payment events thatwould have required payment under thepre-correction plan provision occur withinone year following the date of correction,50% of the amount deferred under the planto which the pre-correction plan provisionapplied must be included in income under§ 409A(a) by the affected service providerfor the service provider’s taxable yearwithin which the event occurs.

B. Plans with Only ImpermissiblePayment Events under § 409A

1. Eligibility

This section applies to a plan provisionthat, with respect to a deferred amount,provides for payment only upon one ormore impermissible payment events under§ 409A and does not include any permissi-ble payment events under § 409A.

2. Correction

A plan provision eligible for this sec-tion may be corrected in accordance withthis section before the date one or moreof the impermissible payment events oc-curs to which the provision applies. Theplan may be corrected by amending theplan to remove the provision providing forthe impermissible payment events beforeany impermissible payment event occurs,and replacing that provision with a provi-sion providing for payment upon the laterof the service provider’s separation fromservice (as defined under § 1.409A–1(h)without reference to any permissible alter-native definition that may be designated inthe plan) and the sixth anniversary of thedate of correction. In addition, the affectedservice provider must include 50% of theamount deferred under the plan to whichthe pre-correction plan provision appliedin income under § 409A(a) in the serviceprovider’s taxable year within which thedate of correction occurs.

C. Certain Impermissible AlternativePayment Schedules

1. Eligibility

This section applies to a plan provisionthat, with respect to a deferred amount,provides for more than one time or form

of payment upon the occurrence of a sin-gle type of permissible payment event un-der § 409A in a manner that fails to sat-isfy the requirements of § 409A(a) and§ 1.409A–3(c).

2. Correction

To the extent the multiple times orforms of payment relate to the occurrenceof a service provider’s voluntary and invol-untary separation from service (as definedunder § 1.409A–1(n)), a plan provisioneligible for this section may be correctedin accordance with this section before thedate a separation from service occurs thatcould result in the impermissible multipletimes or forms of payment for that ser-vice provider. The plan may be correctedby amending the plan to provide that thetime or form of payment upon a voluntaryseparation from service will be the sametime or form of payment that the pre-cor-rection plan provision provided for uponan involuntary separation from service (asdefined under § 1.409A–1(n)), subject tothe requirements of § 409A(a)(2)(B)(i), ifapplicable (the six-month delay require-ment). The amendment must be effectiveimmediately, and if a service provider hasa voluntary separation from service withinone year following the date of correctionwhich results in the corrected plan pro-vision being applied to avoid a time orform of payment that would have been dueunder the pre-correction plan provision,50% of the amount deferred under the planto which the pre-correction plan provi-sion applied must be included in incomeunder § 409A(a) by the affected serviceprovider in the service provider’s taxableyear within which the event occurs.

To the extent the multiple times orforms of payment result from an al-ternative payment schedule relating tosome factor other than whether a serviceprovider’s separation from service is vol-untary or involuntary, a plan provisioneligible for this section may be correctedin accordance with this section before thedate a payment event occurs that could re-sult in the impermissible multiple times orforms of payment for that service provider.Until that time, the plan may be correctedby amending the plan to remove the timesor forms of payment, in accordance withthe next sentence, until the remainingtimes or forms of payment no longer cause

January 19, 2010 285 2010–3 I.R.B.

the plan to fail to satisfy the requirements§ 409A and § 1.409A–3(c). In determiningwhich of two times or forms of paymentshould be removed, the remaining time orform of payment must be the time or formof payment resulting in, or potentially re-sulting in, the latest final payment date,and if two times or forms of payment resultin, or potentially result in, the same latestfinal payment date, the time or form ofpayment commencing, or potentially com-mencing, at the latest possible date, and ifthose two dates are the same, the time orform of payment generally anticipated toresult in the amount deferred being paidat later dates. The amendment must beeffective immediately, and if a paymentevent corrected under this provision oc-curs within one year following the date ofcorrection, 50% of the amount deferredunder the plan to which the pre-correctionplan provision applied must be includedin income under § 409A(a) by the affectedservice provider in the service provider’staxable year within which the event oc-curs. If a time or form of payment hasno possibility of applying to a serviceprovider because the service provider isnot eligible and can never become eligible,or is no longer eligible and cannot againbecome eligible, for such a time or form ofpayment, that time or form of payment isnot required to be removed from the planwith respect to that service provider andthe service recipient and service providermay treat the plan as not failing to sat-isfy the requirements of § 409A(a) and§ 1.409A–3(c) with respect to that serviceprovider merely because of the inclusionof that time or form of payment in the plan.

D. Impermissible Service Provider orService Recipient Discretion with Respectto a Payment Schedule Following aPermissible Payment Event (IncludingSubsequent Deferral Elections)

1. Eligibility

This section applies to a plan provisionthat provides a service provider or a ser-vice recipient with discretion to change thetime or form of payment of an amountdue under the plan following a permissi-ble payment event, causing the plan to failto satisfy the requirements of § 409A(a),§ 1.409A–2(b) or § 1.409A–3(j). How-ever, this section does not apply to a plan

provision that provides a service provideror service recipient discretion to change ormodify payment events, such as the discre-tion to terminate the plan.

2. Correction

A plan provision to which this sec-tion applies that provides a default timeor form of payment that would be ineffect if the service provider or servicerecipient did not exercise its discretion tochange the time or form of payment, andthat does not provide any discretion tochange the time or form of payment afterthe payment event has occurred, will notbe treated as failing to meet the require-ments of § 409A(a) and § 1.409A–3(a),§ 1.409A–3(j) or § 1.409A–2(b) if theservice provider and service recipient donot exercise their discretion, or revokeany discretion exercised and the revoca-tion occurs more than one year before thepayment event occurs. However, if a ser-vice provider to the same service recipientparticipates in a plan with a substantiallysimilar provision, and either the serviceprovider or service recipient exercises itsdiscretion under the plan to change thetime or form of payment under the planand does not revoke that exercise of discre-tion at least one year before the paymentevent occurs, then, to be eligible to correctthat plan provision under this section theservice recipient is required to take com-mercially reasonable steps to identify andcorrect all substantially similar provisionsin other plans, including substantially sim-ilar provisions with respect to which thediscretion has not been exercised by theservice provider or service recipient orwhose exercises of that discretion havebeen revoked.

In all other cases, a plan provision eligi-ble for this section may be corrected in ac-cordance with this section before the date apayment event occurs that is the subject ofthe plan provision eligible for this section.The plan may be corrected by amendingthe plan in accordance with this section.

To the extent that the plan has a de-fault time or form of payment that wouldbe in effect if the service provider or ser-vice recipient did not exercise its discre-tion to change the time or form of pay-ment, the plan may be amended to removethe service provider’s or service recipient’sdiscretion to change the time or form of

payment. If the plan does not have a de-fault time or form of payment that wouldbe in effect if the service provider or ser-vice recipient did not exercise its discre-tion to change the time or form of pay-ment, the plan may be amended to re-move the service provider’s or service re-cipient’s discretion to change the time orform of payment, and to provide that thetime or form of payment will be that po-tential time or form of payment under theterms of the plan in place immediatelyprior to the amendment that would resultin the latest final payment date, and if twoforms of payment result in, or potentiallyresult in, the same latest final paymentdate, the form of payment commencing, orpotentially commencing, at the latest pos-sible date, and if those two dates are thesame the form of payment generally re-sulting in the amount deferred being paidat later dates. In each case the amend-ment must be effective immediately. Ifa payment event to which the correctionapplies occurs within one year followingthe date of correction (including where aservice provider or service recipient hadexercised its discretion before the correc-tion and had revoked the discretion withinone year of the occurrence of the paymentevent), 50% of the amount deferred underthe plan to which the pre-correction planprovision applied must be included in in-come under § 409A(a) by the affected ser-vice provider in the service provider’s tax-able year within which the event occurs.

E. Impermissible Service RecipientDiscretion to Accelerate Payment Events

1. Eligibility

This section applies to a plan pro-vision that does not comply with§ 1.409A–3(j)(4) that provides a servicerecipient with the discretion to accelerateand make a payment regardless of whethera payment event has occurred, such as thediscretion to terminate the plan and im-mediately pay all amounts deferred, andthus does not comply with § 409A(a) and§ 1.409A–3(a) or § 1.409A–3(j).

2. Correction

With respect to a service provider, aplan provision eligible for this section maybe corrected in accordance with this sec-tion before the earlier of the date the ser-

2010–3 I.R.B. 286 January 19, 2010

vice recipient exercises its discretion to ac-celerate a payment under the plan and suchdiscretion is irrevocable, or the date a pay-ment has been made under the plan pur-suant to the exercise of discretion. Theplan may be corrected by amending theplan to remove the service recipient’s dis-cretion to accelerate the payment or to oth-erwise make the acceleration permissibleunder § 1.409A–3(j)(4).

F. Impermissible Reimbursement orIn-Kind Benefit Provisions

1. Eligibility

This section applies to a plan provi-sion that provides for a reimbursement orin-kind benefits subject to § 409A thatdoes not comply with the requirements of§ 409A(a) and § 1.409A–3(i)(1)(iv).

2. Correction

A plan provision eligible for this sec-tion may be corrected in accordancewith this section before the date an eventoccurs that would result in the serviceprovider becoming eligible to receive areimbursement or in-kind benefits subjectto § 409A. The plan may be correctedby amending the plan to provide for re-imbursement or in-kind benefits that sat-isfy the requirements of § 409A(a) and§ 1.409A–3(i)(1)(iv), provided that anyamendment required to satisfy the require-ments of § 1.409A–3(i)(1)(iv)(A)(3) mustcause the amount eligible for reimburse-ment or in-kind benefits to be allocated prorata to the number of years during whichthe service provider may be eligible toreceive the reimbursement or in-kind ben-efits (which may not be amended as part ofthe plan correction). If the pre-correctionreimbursement or in-kind benefits wereavailable for the service provider’s or otherindividual’s lifetime, the period for pur-poses of the proration requirement mustbe established based upon that serviceprovider’s or individual’s life expectancyunder reasonable actuarial assumptions.If the pre-correction reimbursement orin-kind benefits were available for a periodending with an event, the period for pur-poses of the proration requirement mustbe established based upon reasonable as-sumptions and may not be less than threeyears. The amendment must be effectiveimmediately, and if an event occurs that

would have made the service providereligible for payment of reimbursement orin-kind benefits under the pre-correctionplan provision within one year followingthe date of correction and results in thecorrected plan provision being applied toavoid or reduce the availability or paymentof reimbursement or in-kind benefits, 50%of the amount deferred under the plan towhich the pre-correction plan provisionapplied must be included in income under§ 409A in the service provider’s taxableyear within which the event occurs.

G. Examples

The following examples illustrate theprovisions of this § VII. For each example,assume that the employee and employerare eligible to correct the impermissibleprovision under § III of this notice at allrelevant times.

Example 1 (plan with permissible and impermis-sible payment events). Employee P is an employeeof Employer whose employment agreement entitlesEmployee P to $100x payable upon the earlier of sep-aration from service or an initial public offering ofEmployer stock. On January 1, 2011, Employer andEmployee P amend the employment agreement to re-move the payment event related to an initial public of-fering, so that the amount is payable solely upon Em-ployee P’s separation from service. An initial publicoffering of Employer stock occurs on September 1,2011.

Conclusion: Employer and Employee P correctedthe employment agreement before the initial publicoffering of Employer stock, but the initial public of-fering occurred within one year following the dateof correction. Provided that Employer reports 50%of the amount deferred under the plan to which thepre-correction plan provision applied as an amountincludible in income under § 409A(a) for 2011 onthe Form W–2, Box 1 and Box 12 using Code Z, forEmployee P, and Employee P includes 50% of theamount deferred in income under § 409A and paysall applicable Federal taxes, including the additional20% tax on such amount (but not the premium interesttax), Employee P will not be required to include anyfurther amounts in income under § 409A(a) solely asa result of the pre-correction plan provision.

Example 2 (plan with permissible and impermis-sible payment events). Employee Q is an employeeof Employer whose employment agreement entitlesEmployee Q to $100x payable upon the earlier ofseparation from service or an initial public offeringof Employer stock. On July 1, 2011, Employer andEmployee Q amend the employment agreement to re-move the payment event related to an initial public of-fering, so that the amount is payable solely upon Em-ployee Q’s separation from service. An initial publicoffering of Employer stock occurs on September 1,2012.

Conclusion: Employer and Employee Q cor-rected the employment agreement more than one yearbefore the initial public offering of Employer stock.

Provided that Employer does not pay Employee Qany amount pursuant to this plan provision due tothe initial public offering, Employee Q will not berequired to include any amount under § 409A(a)solely as a result of the pre-correction plan provision.

Example 3 (plan with only impermissible pay-ment events). Employee R is an employee of Em-ployer who participates in a plan providing for pay-ment of $100x to a service provider upon the serviceprovider’s child enrolling in an institution providingpost-secondary education. On August 15, 2011, Em-ployee R’s child enrolls in an institution providingpost-secondary education.

Conclusion: Because Employee R’s child en-rolled in an institution providing post-secondaryeducation before the provision was corrected, regard-less of whether Employee R is paid $100x, the planis not eligible for correction, and Employee R mustinclude amounts in income and pay the additionaltaxes under § 409A(a) accordingly.

Example 4 (plan with only impermissible paymentevents). Employee S is an employee of Employerwho participates in a plan providing for paymentof $100x to a service provider upon the serviceprovider’s child enrolling in an institution providingpost-secondary education. On October 1, 2011,Employer and Employee S amend the plan to re-place the provision providing for payment upon aservice provider’s child enrolling in an institutionproviding post-secondary education with a provisionproviding for payment upon the later of the serviceprovider’s separation from service (as defined under§ 1.409A–1(h) without reference to any permissiblealternative definition that may be designated in aplan) and October 1, 2017.

Conclusion: Employer and Employee S correctedthe plan provision before a child of Employee S en-rolled in an institution providing post-secondary ed-ucation. Provided that Employer reports 50% of theamount deferred under the plan to which the pre-cor-rection plan provision applied as an amount includi-ble in income under § 409A(a) for 2011 on the FormW–2, Box 1 and Box 12 using Code Z, for EmployeeS, and Employee S includes 50% of the amount de-ferred in income under § 409A(a) and pays all appli-cable Federal taxes, including the additional 20% taxon such amount (but not the additional premium in-terest tax), Employee S will not be required to includeany further amount in income under § 409A(a) solelydue to the pre-correction plan provision.

Example 5 (plan with impermissible alternativepayment schedules). Employee T is an employee ofEmployer whose employment agreement with Em-ployer provides for payment of $100x in the formof a lump sum payment if Employee T has an invol-untary separation from service with Employer, and$100x in the form of ten annual installments if Em-ployee T has a voluntary separation from service withEmployer. On October 1, 2011, Employer amendsthe agreement to replace the provision providing forpayment in the form of installments upon a volun-tary separation from service with a provision provid-ing for payment in the form of a lump sum upon avoluntary separation from service. Employee T has avoluntary separation from service with Employer onJune 1, 2015.

Conclusion: Because Employee T and Employercorrected the plan provision before Employee T sep-arated from service with Employer, and Employee

January 19, 2010 287 2010–3 I.R.B.

T separated from service more than one year fol-lowing the date of correction, Employee T will notbe required to include any amount in income under§ 409A(a) solely due to the pre-correction plan pro-vision.

Example 6 (plan with impermissible alternativepayment schedules). All of Employer’s employeesare classified as either Level 1 or Level 2 employ-ees, depending upon the position in which they workand the division at which they work. Employee U isan employee of Employer whose employment agree-ment with Employer provides for a payment of $100xin the form of a lump sum if Employee U separatesfrom service at a time that Employee U is a Level1 employee, or for payment of $100x in the form often annual installments if Employee U separates fromservice at a time that Employee U is a Level 2 em-ployee. On October 1, 2011, Employer amends theagreement to replace the provision providing for pay-ment in the form of a lump sum payment upon a sepa-ration from service at the time Employee U is a Level1 employee with a provision providing for paymentin the form of ten annual installments upon EmployeeU’s separation from service (regardless of EmployeeU’s classification at the time). Employee U has a sep-aration from service with Employer on June 1, 2012at which time Employee U is a Level 2 employee.

Conclusion: Employer and Employee U cor-rected the plan provision before Employee U sepa-rated from service, and Employee U separated fromservice within a year of the correction. Provided thatEmployer pays $100x to Employee U in ten annualinstallments, Employer reports 50% of the amountdeferred under the plan to which the pre-correctionplan provision applied as an amount includible inincome under § 409A(a) for 2012 on the Form W–2,Box 1 and Box 12 using Code Z, for Employee U,and Employee U pays all applicable Federal taxes,including the additional 20% tax on such amount (butnot the additional premium interest tax), EmployeeU will not be required to include any further amountin income under § 409A(a) solely as a result of thepre-correction plan provision.

Example 7 (plan with impermissible serviceprovider or service recipient discretion with respectto payment schedules following permissible paymentevents). Employee V is an employee of Employerwho participates in a plan providing for payment of$100x to Employee V upon Employee V attainingage 65 in the form of ten annual installments, unlessEmployer otherwise determines in its sole discre-tion to pay the amount in the form of a lump sumpayment. On February 1, 2011, Employer amendsthe plan with Employee V to remove Employer’sdiscretion to change the time or form of payment, sothat the amount is payable in the form of ten annualinstallments. Employee V attains age 65 on July 1,2012.

Conclusion: Because Employer and Employee Vcorrected the provision before Employee V attainedage 65, and because more than one year passed afterthe date of correction before Employee V attained age65, Employee V will not be required to include anamount in income under § 409A(a) solely due to thepre-correction plan provision.

Example 8 (plan with impermissible serviceprovider or service recipient discretion with respectto payment schedules following permissible paymentevents). Employee W is an employee of Employer

who participates in a plan providing for payment of$100x to Employee W upon Employee W attainingage 65 in the form of a lump sum payment or annualinstallments not to exceed ten years, determined atthe sole discretion of Employer. On February 1,2011, Employer amends the plan with Employee Wto remove Employer’s discretion to change the timeor form of payment upon Employee W attaining age65, so that the amount is payable in the form of tenannual installments upon Employee W attaining age65. Employee W attains age 65 on January 2, 2012.

Conclusion: Employer and Employee W cor-rected the plan provision before Employee W attainedage 65, but less than one year before Employee Wattained age 65. Provided that Employer reports 50%of the amount deferred under the plan to which thepre-correction plan provision applied as an amountincludible in income under § 409A(a) for 2012 onthe Form W–2, Box 1 and Box 12 using Code Z,for Employee W, and Employee W includes 50%of the amount deferred in income under § 409A(a)and pays all applicable Federal taxes, including theadditional 20% tax on such amount (but not theadditional premium interest tax), Employee W willnot be required to include any further amount inincome under § 409A(a) solely as a result of thepre-correction plan provision.

Example 9 (plan with impermissible serviceprovider or service recipient discretion with respectto payment schedules following permissible paymentevents). Employee X is an employee of Employerwho participates in a plan providing for payment of$100x to Employee X upon Employee X’s separationfrom service, provided that Employer may delaythat payment for up to three years if certain cashflow targets are not met. On July 1, 2011, Employeramends the plan to remove its discretion to delaypayment, and to remove any delay on payment dueto a failure to meet prescribed cash flow targets. Itreplaces those provisions with a provision statingthat payment will be delayed to the extent a paymentwould jeopardize the ability of the service recipientto continue as a going concern, but only until suchtime as the making of the payment would not havesuch effect. Employee X separates from service onJanuary 1, 2013.

Conclusion: Because Employer and Employee Xcorrected the plan provision more than one year be-fore Employee X separated from service, EmployeeX will not be required to include an amount in incomeunder § 409A(a) solely as a result of the pre-correc-tion plan provision. Note that this correction requirednot only the removal of the discretion, but also theprovision that payment would be delayed if certaincash flow targets were not met. The addition of thelanguage providing for a delay if the payment wouldjeopardize the ability of the service recipient to con-tinue as a going concern is not required as a condi-tion of the correction, but may be added because theprovision complies with the operational provisions of§ 1.409A–3(d) (permitting delayed payments undercertain circumstances, regardless of whether such cir-cumstances are described in the plan).

Example 10 (plan permitting impermissible sub-sequent deferral election).

Employee Y is an employee of Employer whoparticipates in a plan providing for payment at age 65.The plan further provides that an employee may electat any time before 30 days before reaching age 65 to

defer the payment for a period of at least 12 months.Employee Y never makes a subsequent deferral elec-tion under the plan, attains age 65 on March 1, 2011,and is paid the amount deferred under the plan.

Conclusion: Because Employee Y was only al-lowed to apply Employee Y’s discretion to further de-fer the payment before the payment event occurred,and has never applied the subsequent deferral electionprovision, Employee Y will not be required to includean amount in income under § 409A(a) solely due tothe impermissible subsequent deferral plan provision.

Example 11 (plan permitting impermissible sub-sequent deferral election). The same facts as in Ex-ample 10, except that the participant is Employee Zwho makes a subsequent deferral election to defer thepayment to age 70 on June 1, 2011, when EmployeeZ is age 63. On July 1, 2011, Employee Z revokes thesubsequent deferral election.

Conclusion: Because Employee Z was only al-lowed to apply Employee Z’s discretion to further de-fer the time or form of payment before the paymentevent occurred, and revoked the subsequent defer-ral election more than one year before the paymentevent occurred (attaining age 65), Employee Z willnot be required to include an amount in income under§ 409A solely due to the pre-correction plan provi-sion.

Example 12 (plan permitting impermissible sub-sequent deferral election). The same facts as in Ex-ample 10, except that the participant is Employee AAwho makes a subsequent deferral election to deferthe payment to age 67 on March 1, 2010, when Em-ployee AA is age 63 and two months. Employee AArevokes the subsequent deferral election on Septem-ber 1, 2011, when Employee AA is age 64 and eightmonths. Employee AA attains age 65 on January 1,2012, and is not paid the amount deferred under theplan.

Conclusion: Because Employee AA exercisedEmployee AA’s discretion to make a subsequentdeferral election under the plan, but did not revokethe subsequent deferral election more than one yearbefore the payment event occurred (Employee AAattaining age 65), and the plan provision was notcorrected before Employee AA attained age 65, Em-ployee AA must include the amount deferred underthe plan in income under § 409A(a).

Example 13 (plan permitting impermissible sub-sequent deferral election). The same facts as in Ex-ample 10, except that the participant is Employee BBwho makes a subsequent deferral election to defer thepayment to age 68 on March 1, 2010, when EmployeeBB is age 63 and six months. On June 1, 2011, whenEmployee BB is age 64 and eight months, the plan isamended to remove the subsequent deferral electionprovision and Employee BB’s election is revoked.

Conclusion: Employee BB exercised EmployeeBB’s discretion to make a subsequent deferral elec-tion under the plan and did not revoke the subse-quent deferral election more than one year before thepayment event occurred (Employee BB attaining age65), but the plan provision was corrected before Em-ployee BB attained age 65. Provided that Employerreports 50% of the amount deferred under the planto which the pre-correction plan provision applied asan amount includible in income under § 409A(a) for2011 on the Form W–2, Box 1 and Box 12 using CodeZ, for Employee BB, and Employee BB includes 50%of the amount deferred in income under § 409A(a)

2010–3 I.R.B. 288 January 19, 2010

and pays all applicable Federal taxes, including theadditional 20% tax on such amount (but not the addi-tional premium interest tax), Employee BB will notbe required to include any further amount in incomeunder § 409A(a) solely as a result of the pre-correc-tion plan provision.

Example 14 (plan with impermissible service re-cipient discretion to accelerate payment events). Em-ployee CC is an employee of Employer who partici-pates in a plan that provides for payment of $100x toEmployee CC upon Employee CC’s separation fromservice, unless Employer otherwise elects in its solediscretion to pay all or a portion of such amount onan earlier date. On January 1, 2011, Employer ex-ercises its discretion to accelerate payment to Em-ployee CC and makes a $50x lump sum payment onMarch 1, 2011. On July 1, 2011, Employer amendsthe plan to remove its discretion to pay all or a por-tion of the remaining amount on an earlier date, andto provide only that it may exercise discretion to ter-minate and pay amounts under the plan in compliancewith 1.409A–3(j).

Conclusion: Because Employer exercised its dis-cretion and made a payment before the correction ofthe plan provision, regardless of whether EmployeeCC returns the payment the plan fails to meet the re-quirements of § 409A(a) for periods during whichthe plan contained the provision, and Employee CCmust include amounts in income and pay the addi-tional taxes under § 409A(a) accordingly.

Example 15 (plan with impermissible service re-cipient discretion to accelerate payment events). Em-ployee DD is an employee of Employer who partici-pates in a plan that provides for payment of $100x toEmployee DD upon Employee DD’s separation fromservice, unless Employer otherwise elects in its solediscretion to pay all or a portion of such amount onan earlier date. On March 1, 2011, Employer amendsthe plan to remove its discretion to pay all or a por-tion of such amount on an earlier date, and to pro-vide only that it may exercise discretion to terminateand pay amounts under the plan in compliance with1.409A–3(j). Employee DD has a separation fromservice on March 15, 2011.

Conclusion: Because Employer and EmployeeDD corrected the plan provision before Employerexercised its discretion, Employee DD will not berequired to include any amount in income under§ 409A(a) solely as a result of the pre-correction planprovision.

Example 16 (plan with impermissible reimburse-ment or in-kind benefits provision). Employee EEis an employee of Employer who participates ina plan providing that Employee EE is eligible forreimbursement of country club dues for five years,up to an aggregate of $100x, following EmployeeEE’s separation from service with Employer afterattaining age 65 and ten years of service. EmployeeEE attained age 65 and ten years of service during2009. On April 1, 2011, Employer amends the planto specify that Employee EE is only eligible forreimbursement of up to $20x during each of the fiveyears following the Employee EE’s separation fromservice. Employee EE has a separation from servicewith Employer on December 15, 2011.

Conclusion: Employer and Employee EE cor-rected the plan provision before Employee EE sep-arated from service with Employer but less than oneyear passed between the date of correction and Em-

ployee EE’s separation from service. Provided thatEmployer reports 50% of the amount deferred un-der the plan to which the pre-correction plan provi-sion applied as an amount includible in income under§ 409A(a) for 2011 on the Form W–2, Box 1 and Box12 using Code Z, for Employee EE, and Employee EEincludes 50% of the amount deferred in income under§ 409A(a) and pays all applicable Federal taxes, in-cluding the additional 20% tax on such amount (butnot the additional premium interest tax), EmployeeEE will not be required to include any further amountin income under § 409A(a) solely as a result of thepre-correction plan provision.

Example 17 (plan with impermissible reimburse-ment or in-kind benefits provision). The same facts asin Example 16, except that the plan is with EmployeeFF and Employee FF has a separation from servicewith Employer on October 1, 2012.

Conclusion: Because Employer and EmployeeFF corrected the plan provision before Employee FFseparated from service with Employer, and becausemore than one year passed between the date of correc-tion and Employee FF’s separation from service, Em-ployee FF will not be required to include any amountin income under § 409A(a) solely as a result of thepre-correction plan provision.

VIII. CORRECTION OF FAILURETO INCLUDE SIX-MONTH DELAYOF PAYMENT FOR SPECIFIEDEMPLOYEES

1. Eligibility

This section applies to a plan that failsto include a provision providing for asix-month delay of payment for a speci-fied employee, to the extent required by§ 409A(a)(2)(B)(i) and § 1.409A–1(c)(3).

2. Correction

A plan eligible for this section maybe corrected in accordance with this sec-tion before the date an event occurs thatwould be subject to the requirements of§ 409A(a)(2)(B)(i) by amending the planto add the requirements set forth under§ 409A(a)(2)(B)(i) and to further pro-vide that an amount payable under theplan that is subject to the requirementsof § 409A(a)(2)(B)(i) may not be paidbefore the later of (i) 18 months fol-lowing the date of correction, or (ii) sixmonths following the date of the paymentevent. The amendment must be effectiveimmediately. Provided that the require-ments of this section are otherwise met,the correction will not constitute a sub-sequent change in the time or form ofpayment under § 1.409A–2(b). If a serviceprovider subject to the requirements of§ 409A(a)(2)(B)(i) participates in the plan

that is so amended and has a separationfrom service within one year followingthe date of correction that results in thecorrected plan provision being applied toavoid a payment that would have been dueunder the pre-correction plan provision,50% of the amount deferred under the planto which the pre-correction plan provisionapplied (and that thus is delayed due to theamendment) must be included in incomeunder § 409A(a) by the service provider inthe service provider’s taxable year withinwhich the separation from service occurs.

3. Example

Employee GG is the chief executive officer ofEmployer, a corporation whose stock is publiclytraded. Employee GG participates in a plan provid-ing for a payment of $100x in ten annual installmentsof $10x commencing immediately when EmployeeGG separates from service from Employer but theplan does not include the six-month delay in paymentas required by § 409A(a)(2)(B)(i). On September 1,2011, Employer and Employee GG amend the planto include the requirements under § 409A(a)(2)(B)(i)and to provide further that no amount will be payablebefore March 1, 2013 (18 months after September 1,2011). Employee GG has a separation from servicewith Employer on December 1, 2011.

Conclusion: Employer and Employee GG cor-rected the plan provision before Employee GG sep-arated from service, but Employee GG has a sep-aration from service within one year following thedate of correction, which results in a payment be-ing delayed that would have been due under the pre-correction plan provision. Provided that Employerdoes not pay Employee GG any amount under theplan until March 1, 2013 (except, as provided bythe plan due to death, disability (as defined under§ 1.409A–3(i)(4)) or a permissible acceleration under§ 1.409A–3(j)(4)), Employer reports as an amount in-cludible in income under § 409A(a) for 2011 on theForm W–2, Box 1 and Box 12 using Code Z, for Em-ployee GG 50% of the amount deferred under the planto which the pre-correction plan provision applied,and Employee GG includes 50% of the amount de-ferred in income under § 409A(a) and pays all appli-cable Federal taxes, including the additional 20% taxon such amount (but not the additional premium inter-est tax), Employee GG will not be required to includeany further amount in income under § 409A solely asa result of the pre-correction plan provision.

IX. CORRECTION OF PROVISIONSPROVIDING FOR IMPERMISSIBLEINITIAL DEFERRAL ELECTIONS

1. Eligibility

This section applies to a plan provisionthat provides for an initial election to defercompensation that does not comply with§ 409A(a) and § 1.409A–2(a). Notwith-standing the foregoing, this section does

January 19, 2010 289 2010–3 I.R.B.

not apply to any plan provision that is el-igible for correction under § VII.D of thisnotice. Accordingly, this section generallyapplies to plan provisions providing elec-tions to defer compensation that would nototherwise be deferred compensation, andnot elections as to the time or form of pay-ment of a deferred amount.

2. Correction

A service provider is not requiredto include an amount in income under§ 409A(a) solely because a plan includesa provision that provides for an ini-tial election to defer compensation thatdoes not comply with § 409A(a) and§ 1.409A–2(a), if the provision has notbeen applied by the service provider orthe service recipient with respect to theservice provider. If the service provideror service recipient takes the action nec-essary to make an election under theprovision before the applicable deadlineunder § 1.409A–2(a), the provision willbe treated as applied on the date of suchapplicable deadline unless the serviceprovider or service recipient has revokedthe election before the applicable dead-line under the regulations. If the serviceprovider or service recipient takes the ac-tion necessary to make an election underthe provision after the applicable deadlineunder § 1.409A–2(a), the provision will betreated as applied on the date the necessaryaction is taken. Note that if a substan-tially similar provision under a plan hasbeen applied by another service providerto the same service recipient, or by thesame service recipient with respect to an-other service provider, to be eligible forcorrection the service recipient would berequired to take commercially reasonablesteps to identify and correct the provisionsin all such plans. See § III.B of this notice.

A plan provision that is eligible forcorrection under this section that has beenapplied may be corrected in accordancewith this section provided that the cor-rection is made no later than the end ofthe service provider’s second taxable yearimmediately following the taxable yearduring which occurs the applicable dead-line for making an initial deferral electionunder § 409A(a) and § 1.409A–2(a). Theplan may be corrected by amending theplan to remove the ability to make theimpermissible initial deferral election,

provided that any amounts that were notpaid during one or more of the serviceprovider’s taxable years due to the im-permissible initial deferral election arecorrected in accordance with the pro-visions of Notice 2008–113 (includingany income inclusion under § 409A(a)required by the applicable provision ofNotice 2008–113). Notwithstanding § IIIof this notice, this correction will not haveany retroactive effect on amounts deferredunder the same provision in any previousyear if the deferral was not corrected underthis section for such previous year by theapplicable deadline under this section, sothat the plan provision will remain a plandocument failure for the previous yearand any resulting deferral will remain anoperational failure.

3. Examples

Example 1 (plan permitting impermissible initialdeferral election). Employee HH is an employeeof Employer who participates in an annual bonusplan under which employees are awarded bonusesbased on a calendar year of service, payable onMarch 15 of the following year. The bonus plan isnot a performance-based compensation arrangementunder § 1.409A–2(a)(8). The bonus plan providesthat employees may make initial deferral electionsto defer the bonus until separation from service (asdefined under § 1.409A–1(h)), provided that theelection is made no later than June 30 of the yearin which the bonus is earned. Employee HH is nota new participant in the plan so that the applicabledeadline under 1.409A–2(a) for the deferral of thebonus earned during 2012 (the 2012 annual bonus)is December 31, 2011. On November 1, 2011,Employee HH submits an election form electing todefer the 2012 annual bonus. On December 31, 2011,Employee HH revokes the deferral election for the2012 annual bonus.

Conclusion: Because Employee HH revoked theimpermissible deferral election on or before the ap-plicable deadline for a permissible deferral electionunder §1.409A–2(a), the plan provision permittingthe impermissible initial deferral election has notbeen applied. Accordingly, Employee HH will notbe required to include any amount in income under§ 409A(a) for the 2012 annual bonus solely due tothe plan provision.

Example 2 (plan permitting impermissible initialdeferral election). The same facts as in Example 1,except that the participant is Employee JJ who alsomakes an election to defer the 2012 annual bonus onNovember 1, 2011, but does not revoke her defer-ral election for the 2012 annual bonus on or beforeDecember 31, 2011. On May 15, 2012, the defer-ral election provision is removed from the plan andEmployee JJ’s deferral election for the 2012 annualbonus is revoked.

Conclusion: Because Employee JJ did not re-voke the impermissible deferral election until afterthe deadline for making an initial deferral election un-

der § 1.409A–2(a), the provision has been applied.Because Employee JJ took the actions necessary tomake the election on or before the applicable dead-line under § 1.409A–2(a) for making an initial de-ferral election, the provision is treated as applied onthe date of the deadline, December 31, 2011. Be-cause the provision was removed from the plan be-fore December 31, 2013, and because no amount hadfailed to be paid due to the application of the imper-missible deferral election, no operational failure oc-curred, and Employee JJ will not be required to in-clude an amount in income under § 409A(a). Notethat to be eligible to make this correction, Employerwould be required to take commercially reasonablesteps to identify and remove any substantially simi-lar provision in any plan of the Employer, includingplans of other service providers and including plansunder which the plan provision permitting an imper-missible initial deferral election had not been applied.Note further that the correction of the provision withrespect to the 2012 annual bonus will have no effecton the impermissible deferral of an annual bonus orother amounts earned in 2011 or any earlier year, sothat, for example, if a 2011 annual bonus were earnedby Employee JJ and Employee JJ made an impermis-sible deferral election with respect to the 2011 bonusthat was not corrected in accordance with this section,that amount would be subject to income inclusion andthe additional taxes under § 409A(a) for the taxableyear 2011 (the year in which Employee JJ’s right tothe bonus was first no longer subject to a substantialrisk of forfeiture), regardless of whether EmployeeJJ’s deferral election with respect to the 2011 annualbonus was subsequently revoked and Employee JJwas paid the bonus on or before March 15, 2012.

Example 3 (plan permitting impermissible initialdeferral election). Employee KK is an employee ofEmployer who has been an employee of Employerfor several years. Employee KK has been eligible for,but has not participated in, a plan under which an em-ployee may elect to defer all or part of his salary tobe payable at separation from service (as defined in§ 1.409A–1(h)), provided that the election may onlybe applied to salary earned on or after the first dayof the second month immediately subsequent to thedate the employee makes an election to defer. Forexample, under the plan terms an election made inApril may only apply to salary earned for June 1 orlater. On April 15, 2011, Employee KK makes anelection to defer 10% of any salary earned on or afterJune 1, 2011. The deferral election remains in effectthrough December 1, 2012, at which time Employerremoves the provision from the plan and revokes Em-ployee KK’s election. Employer treats the failuresto pay Employee KK 10% of Employee KK’s salaryearned from June 1, 2011, through December 1, 2012,as operational failures under Notice 2008–113 andcorrects the failures during 2012 (treating the salarythat would have been paid during 2011 as a correctionmade during the taxable year after the taxable year ofthe operational failure, and the salary that would havebeen paid during 2012 as a correction made duringthe taxable year in which the operational failure oc-curred).

Conclusion: Because Employee KK took theactions necessary to make a deferral election underthe plan provision before the applicable deadline formaking an initial deferral election under 1.409A–2(a)(in this case, December 31, 2010), the provision is

2010–3 I.R.B. 290 January 19, 2010

treated as applied on the date the actions were taken(April 15, 2011). Because Employer removed theplan provision on or before December 31, 2012, andrevoked Employee KK’s election and corrected theresulting operational failures under Notice 2008–113,Employee KK will not be required to include anamount in income under § 409A(a) solely as a resultof the pre-correction plan provision. However, Em-ployee KK may still be required to include an amountin income under § 409A(a) as a condition of correc-tion under Notice 2008–113. Note that to be eligibleto make this correction, Employer would be requiredto take commercially reasonable steps to identify andremove any substantially similar provision in anyplan of Employer, including plans of other serviceproviders and including plans under which the planprovision permitting an impermissible initial deferralelection had not been applied.

X. AMENDMENT PERIODFOLLOWING A SERVICERECIPIENT’S INITIAL ADOPTIONOF A PLAN

1. Eligibility and Correction

This section applies to a plan provi-sion that is eligible for correction underany other section of this notice, but onlyto the extent that the document failure iscorrected no later than the later of the endof the calendar year in which, or the 15th

day of the third calendar month follow-ing, the date the first legally binding rightto deferred compensation arose under thatplan and all other plans of the service re-cipient that would be treated as the sameplan under § 1.409A–1(c)(2) if a singleservice provider participated in all of suchplans (for example, all nonaccount balanceplans of the service recipient). For pur-poses of determining whether a service re-cipient has an additional plan to the oneunder which the legally binding right hasfirst arisen, a taxpayer may disregard anyplan not subject to § 409A (for exam-ple, a grandfathered plan as defined under§ 1.409A–6) and any plan under which allamounts have been paid or forfeited suchthat the service recipient did not retain anyobligation to make a payment under thatplan at the time the legally binding rightarises under the plan at issue. Providedthat the plan is corrected in accordancewith the applicable section of this notice bysuch deadline (including the requirementthat all commercially reasonable steps toidentify and correct any other plans withsubstantially similar language is met), anyamounts paid that would not have beenpaid under the corrected plan provision if

that provision had always been the planprovision are treated as operational fail-ures and corrected under Notice 2008–113by the end of the calendar year in whichthe document failure is corrected (and anyamounts not paid that would have beenpaid under the corrected plan provision ifthat provision had always been the planprovision are treated as operational fail-ures and corrected under Notice 2008–113by the end of the calendar year in whichthe document failure is corrected), the ap-plicable section of this notice may be ap-plied without applying any requirement inthat section that an amount be includible inincome under § 409A(a) if an event occurswithin one year following the date of cor-rection.

2. Example

On April 1, 2011, Employer establishes its firstnonqualified deferred compensation plan that is anonaccount balance plan. Employee LL, an em-ployee of Employer, becomes eligible for a paymentunder the plan of $100x by Employer upon the earlierof an initial public offering of Employer stock orseparation from service. On September 15, 2011,Employer and Employee LL amend the plan in ac-cordance with § VII.A of this notice to delete thepayment event related to an initial public offeringof Employer stock, so that the plan provides thatthe amount will only be paid upon Employee LL’sseparation from service. Because the amendmentoccurred by the end of the calendar year in which thefirst legally binding right arose under any nonaccountbalance plan of Employer, Employer and EmployeeLL may apply the provisions of § VII.A of this noticewithout applying any requirements that EmployeeLL include an amount in income if certain events oc-cur within one year following the date of correction.Accordingly, Employee LL will not be required toinclude any amount in income under § 409A(a) as aresult of the pre-correction plan provision regardingpayment upon an initial public offering even if thereis a public offering of Employer stock on or beforeDecember 15, 2012 (provided that if there had beenan initial public offering of Employer stock beforeSeptember 15, 2011, and Employee LL had beenpaid an amount under the plan, the payment wouldbe required to be treated as an operational failure andcorrected under Notice 2008–113 by December 31,2012).

XI. TRANSITION RELIEF

A. Correction of Document FailuresDescribed in this Notice

1. Relief for Corrections Made on orBefore December 31, 2010

Solely for purposes of applying this no-tice, if a plan fails to satisfy the require-

ments of § 409A(a) in a manner that iseligible for correction under this notice,and the plan is corrected in accordancewith this notice on or before December 31,2010, the plan may be treated as havingbeen corrected on January 1, 2009, for pur-poses of applying the relief provided un-der the applicable section of this notice,and any requirement of an income inclu-sion under § 409A as a condition of therelief will not apply (for example, an in-come inclusion under § 409A due to anevent occurring within one year follow-ing the date of correction), provided thatany payment made before December 31,2010 that would not have been made underthe amended provision (or any paymentnot made before December 31, 2010 thatwould have been made under the amendedprovision) is treated as an operational fail-ure and corrected under Notice 2008–113on or before December 31, 2010. Noth-ing in this section is intended to modify therequirements of Notice 2008–113, so that,for example, a service provider that wasan insider with respect to a service recip-ient may be required to include an amountin income under § 409A to satisfy the re-quirements of Notice 2008–113 and be eli-gible for relief under this section. See No-tice 2008–113, § VII.

2. Examples

The following examples illustrate theprovisions of this § XI.A. For each ex-ample, assume that the employee and em-ployer are eligible to correct the impermis-sible provision under § III of this notice.

Example 1. Employee MM is an employee ofEmployer who participates in a plan that provides fora payment of $100x upon a separation from servicethat was defined to include transition from employeeto independent contractor status and to exclude anyreduction in the hours of employment. In all otherrespects, the plan complies with § 409A(a). On July1, 2009, Employee MM became an independent con-tractor and was paid $100x. On April 1, 2010, Em-ployer amends the plan in accordance with § V.A ofthis notice to define separation from service as a sepa-ration from service in accordance with § 1.409A–1(h)(designating no permissible alternative definition ofseparation from service under § 1.409A–1(h)).

Conclusion: Because Employer and EmployeeMM amended the plan before December 31, 2010in accordance with § V.A of this notice, if the pay-ment of $100x is treated as an operational failure andcorrected in accordance with the provisions of Notice2008–113 on or before December 31, 2010, the planmay be treated as corrected under § V.A without ap-plication of the requirement of income inclusion un-der § 409A if an event occurs that would have been

January 19, 2010 291 2010–3 I.R.B.

treated as a separation from service under the pre-cor-rection provision but not under the corrected plan pro-vision (or an event occurs that would not have beentreated as a separation from service under the pre-cor-rection plan provision but would be so treated underthe corrected plan provision) within one year follow-ing the date of correction.

Example 2. Same facts as Example 1, except thatthe plan is with Employee NN, who reduced her hoursfrom 40 hours per week to 10 hours per week onSeptember 1, 2009 and was not paid any amount.

Conclusion: Because Employer and EmployeeNN amended the plan between Employer and Em-ployee NN before December 31, 2010, in accordancewith § V.A of this notice, if the failure to pay $100xduring 2009 is treated as an operational failure andcorrected in accordance with the provisions of No-tice 2008–113 on or before December 31, 2010, theplan may be treated as corrected under § V.A withoutapplication of the requirement of an income inclusionunder § 409A if an event occurs that would have beentreated as a separation from service under the pre-cor-rection provision but not under the corrected plan pro-vision (or an event occurs that would not have beentreated as a separation from service under the pre-cor-rection provision but would be so treated under thecorrected plan provision) within one year followingthe date of correction.

Example 3. The same facts as in Example 1, ex-cept that the plan is with Employee PP who continuesproviding services of 40 hours per week for Employerat all relevant times and received no payment.

Conclusion: For purposes of this notice the planmay be treated as corrected under § V.A without ap-plication of the requirement of an income inclusionunder § 409A if an event occurs that would have beentreated as a separation from service under the pre-cor-rection provision but not under the corrected plan pro-vision (or an event occurs that would not have beentreated as a separation from service under the pre-cor-rection provision but would be so treated under thecorrected plan provision) within one year followingthe date of correction.

B. Correction of ImpermissibleProvisions Linking Nonqualified DeferredCompensation Plans

1. Relief for Corrections Made on orBefore December 31, 2011

This section applies to a nonqualifieddeferred compensation plan if the amountdeferred under the plan is determined by,or the time or form of payment is affectedby, the amount deferred under, or the pay-ment provisions of, another nonqualifieddeferred compensation plan such that oneor both of the plans fails to satisfy the re-quirements of § 409A(a). Provided thatthe plans are corrected in accordance withthis section on or before December 31,2011, the plans will not be treated as failingto satisfy the requirements of § 409A(a)solely due to the effect of the linkage be-

tween the two plans (so that one or bothplans may continue to fail to satisfy therequirements of § 409A(a) due to a fail-ure unrelated to the linkage between thetwo plans, in which case that failure wouldneed to be addressed separately if eligiblefor correction under this notice). To cor-rect under this section, the time or form ofpayment under the two plans must be madeidentical. For this purpose, any permissi-ble payment event under § 409A that is apayment event under either plan must beretained. If the two plans contain the samepermissible payment events under § 409A,but the payment events are defined dif-ferently, the amended payment event forthe two plans must be the narrower def-inition (meaning the definition resultingin the smaller scope of events that wouldconstitute payment events). If the twoplans contain the same permissible pay-ment event under § 409A, but the scheduleof payments following the payment eventare different, the amended schedule of pay-ments must be the payment schedule re-sulting in, or potentially resulting in, thelatest final payment date, and if two pay-ment schedules result in, or potentially re-sult in, the same latest final payment date,the payment schedule commencing, or po-tentially commencing, at the latest possi-ble date, and if those two dates are thesame the payment schedule generally re-sulting in the amount deferred being paidat later dates. If any amounts have beenpaid under one or more of the plans ina manner that would not have been con-sistent with the amended payment provi-sions had those payment provisions beenthe payment provisions since January 1,2009, or have failed to be paid in a mannerthat would not have been consistent withthe amended payment provisions, the pay-ments must be treated as operational fail-ures and corrected under Notice 2008–113on or before December 31, 2011 to be eli-gible for the relief under this section.

2. Example

Employee QQ is an employee of Employer. Em-ployee QQ participates in a nonqualified deferredcompensation plan that is a nonaccount balance planproviding for ten annual installments beginning atthe earlier of separation from service or a change incontrol of Employer, with a change in control of Em-ployer defined to include only a sale of the majorityof the stock of Employer. The amount payable underthe nonaccount balance plan is offset by the amountdeferred under a nonelective account balance plan

providing for a lump sum payment at the earliest ofdeath, disability, unforeseeable emergency, change incontrol of Employer (defined to include all permissi-ble change in control events under §1.409A–3(i)(5))or separation from service. The plan fails to meet therequirement of designating a permissible paymentevent under § 1.409A–3(a)(1) due to the linkage be-tween the plans because, for example, a contributionto the nonelective account balance plan would reducethe deferred amount under the nonaccount balanceplan, causing an amount previously deferred underthe nonaccount balance plan to become payable atthe different times and forms of payment applicableunder the nonelective account balance plan. Theplans are amended on or before December 31, 2011,so that both plans provide payment upon the earliestof a change of control of Employer (defined to in-clude only a sale of the majority of the stock of theemployer), a separation from service, death, disabil-ity or unforeseeable emergency, and provide that apayment upon a change of control of Employer or aseparation from service will be made in ten annualinstallments beginning on the date of the paymentevent, and that a payment upon death, disability orunforeseeable emergency will be made as a lumpsum payment on the date of the payment event.

Conclusion: Provided that any payments thatwere made before the amendment of the plan thatwould not have been made if the amended provi-sion had been the payment provision under the planon and after January 1, 2009, or any failures tomake payments that would have been due beforethe amendment of the plan if the amended provisionhad been the payment provision under the plan onand after January 1, 2009, are treated as operationalfailures and corrected under Notice 2008–113 onor before December 31, 2011, Employee QQ andEmployer may treat the two plans as not failing tosatisfy the requirements of § 409A(a) solely due tothe effect of the linkage of the two plans on the timeor form of payment of deferred amounts under theplans.

C. Correction of Payment SchedulesDetermined by the Timing of PaymentsReceived by the Service Recipient

1. Relief for Corrections Made on orBefore December 31, 2011

If a nonqualified deferred compen-sation plan contains a payment provi-sion that would satisfy the requirementfor a fixed schedule of payments under§1.409A–3(i)(1)(iii) but for a failure tosatisfy either one or both of the condi-tions set forth in §1.409A–3(i)(1)(iii)(C)or (D), the payment provision will not betreated as causing the plan to fail to bea fixed schedule of payments if the planis amended to satisfy such conditions onor before December 31, 2011, and anypayments made under the plan that wouldnot have been made if the amended pro-vision had been the payment provision

2010–3 I.R.B. 292 January 19, 2010

under the plan since January 1, 2009, orany failures to make payments that wouldhave been due before the amendment ofthe plan if the amended provision had al-ways been the payment provision underthe plan, are treated as operational failuresand corrected under Notice 2008–113 onor before December 31, 2011.

2. Example

Employee RR is an employee of Employer whoparticipates in a nonqualified deferred compensa-tion plan under which Employee RR is entitled toa payment of 20% of the amounts collected on anyoutstanding accounts receivable for which EmployeeRR was the primary contact at the time of EmployeeRR’s separation from service, to the extent suchamounts are collected on or before the third anniver-sary of Employee RR’s separation from service. Theaccounts receivable arise from bona fide and rou-tine transactions in the ordinary course of businessof Employer. Employee RR does not at any timehave effective control of Employer, of any customerfrom whom the accounts receivable are due, or ofthe collection of any of the accounts receivable.Employee RR separated from service on March 1,2008. On February 1, 2009, Employee RR receiveda payment of 20% of the amount collected on theidentified accounts receivable through December 31,2008. The plan satisfies all of the requirements of§ 1.409A–3(i)(1)(iii) except § 1.409A–3(i)(1)(iii)(D),the requirement that the payment schedule providean objective nondiscretionary schedule under whichthe payments will be made to the service provider.On October 1, 2009, Employee RR and Employeramend the agreement to provide that each January 15Employer will pay Employee RR an amount equalto 20% of the amounts collected on the identifiedaccounts receivable during the previous calendaryear. Because the payment to Employee RR onFebruary 1, 2009, would not have failed to satisfythe operational requirements of § 409A(a) hadthe amended payment provision been the paymentprovision of the plan since January 1, 2009, thepayment is not required to be treated as an operationalfailure and corrected under Notice 2008–113.Employee RR and Employer may treat the plan asnot failing to have a fixed schedule of payments forpurposes of § 409A(a) for all periods prior to theamendment.

D. Service Recipients Under Examinationfor Returns Covering Periods Beginningon or Before December 31, 2011

Solely for purposes of applying § III.Cof this notice, for corrections made onor before December 31, 2011, a non-in-dividual service recipient that is underexamination for periods beginning on orbefore December 31, 2011, will only betreated as under examination with respectto any specific document failure that hasbeen identified as an issue in the exam-

ination (including any other plan of theservice recipient with a substantially sim-ilar document failure). Therefore, for anydocument failure that has not yet beenspecifically identified, the requirementsthat the non-individual service recipientnot be under examination with respect tothe plan will be treated as satisfied and thedocument failure may be eligible for cor-rection under the applicable section of thisnotice provided that all other eligibilityrequirements are met. For this purpose, adocument failure will be treated as specif-ically identified in an examination of afederal tax return for a taxable year begin-ning before January 1, 2009, if the planprovision is identified as a provision thatwill have resulted in a document failureif the provision was not amended beforethe beginning of the first taxable yearbeginning on or after January 1, 2009.

XII. INFORMATION ANDREPORTING REQUIREMENTS

A. Information and Reporting Requiredfor Correction of a Document Failure

A service recipient described in anyof §§ V through XI of this notice mustattach to its timely-filed (including exten-sions) original federal income tax returnfor its taxable year in which it correctsthe failure, a statement entitled “§ 409ADocument Correction under § [INSERTAPPROPRIATE SECTION(S)] of Notice2010–6” setting out the information re-quired by § XII.B of this notice. Thisstatement must also be attached to theservice recipient’s timely-filed (includingextensions) original federal income tax re-turn for the service recipient’s taxable yearsubsequent to the taxable year in whichthe failure was corrected, but only to theextent that a service provider is required toinclude an amount in income during suchsubsequent year to be eligible for the reliefunder this notice. In addition, not laterthan the date (with extensions) on whichit is required to provide an informationreturn (Form W–2 or 1099) to a serviceprovider who is affected by such failure(or if no information return is required forsuch service provider, not later than theJanuary 31 following the calendar yearin which it corrects such failure) for thecalendar year in which it corrects suchfailure, and for the subsequent calendar

year to the extent the service provider isrequired to include an amount in incomeduring such subsequent year to be eligiblefor relief under this notice, a service recip-ient described in any of §§ V through XI ofthis notice must provide to each such ser-vice provider a statement entitled “§ 409ADocument Correction under § [INSERTAPPROPRIATE SECTION(S)] of Notice2010–6” setting out the information re-quired by § XII.C of this notice. A serviceprovider who is relying on the relief pro-vided in §§ V through XI of this notice fora failure to comply with § 409A(a) must at-tach to the service provider’s timely-filed(including extensions) original federalincome tax return for the year in whichsuch failure was corrected the informationrequired by § XII.D of this notice. Thisinformation must also be attached to theservice provider’s timely-filed (includingextensions) original federal income taxreturn for the year subsequent to the yearin which the failure was corrected, butonly if the service provider is required toinclude an amount in income during thatyear to be eligible for the relief in this no-tice. In addition, each taxpayer relying onthe relief provided in any of §§ V throughXI of this notice must make reasonableefforts to provide notice to the examiningagent upon the commencement of an ex-amination of such taxpayer’s federal taxreturn that the taxpayer was relying uponthe relief provided under this notice foryears covered by the examination. Forpurposes of this section, a section of thisnotice refers to each separate section ofthis notice, such that § VI.A and § VI.Bare separate sections, and includes any useof the transition relief in § XI.

B. Attachment to Service Recipient TaxReturn for Failures Described in §§ Vthrough XI of this Notice

The service recipient must attach astatement to its return setting out thefollowing information for each failure de-scribed in any of §§ V through XI of thisnotice:

(1) The name and taxpayer identifi-cation number of each service provideraffected by the document failure. If thesame or a substantially similar documentfailure has occurred for multiple serviceproviders, the information required in§§ XII.B.(2) and (3) of this notice may be

January 19, 2010 293 2010–3 I.R.B.

supplied only once for each such documentfailure, provided that the identification ofeach service provider affected by the doc-ument failure references such information.

(2) Identification of the nonqualifieddeferred compensation plan with respect towhich such failure occurred.

(3) A statement that the document fail-ure is eligible for the correction under theterms of this notice and identifying the sec-tion of this notice under which the docu-ment failure is corrected, that the servicerecipient has taken all actions required andotherwise met all requirements for suchcorrection as of the last day of the servicerecipient’s taxable year in which the cor-rection is made, and also as of the last dayof any subsequent taxable year of the ser-vice recipient during which an amount isrequired to be included in income under§ 409A by a service provider as part of thecorrection, and providing the date of cor-rection and the date of any event causingthe inclusion of an amount in income under§ 409A by the affected service provider.

(4) For each failure described in §§ Vthrough XI of this notice, the amount in-volved in each document failure, and tothe extent applicable, the amount reportedby the service recipient as includible in in-come under § 409A(a) as part of the cor-rection and the percentage of the amountinvolved in each document failure requiredto be included in income under § 409A(a)as part of the correction.

C. Information to be Provided to ServiceProvider for Failures Described in §§ Vthrough XI of this Notice

The service recipient must providethe following information to each serviceprovider affected by a failure to complywith § 409A who is entitled to relief under§§ V through XI of this notice with respectto such failure:

(1) A statement that the service provideris entitled to the relief provided in §§ Vthrough XI of this notice (identifying theapplicable section of this notice underwhich the document failure is corrected)with respect to a failure to comply with§ 409A, and that the service providermust attach a copy of the statement to theservice provider’s income tax return forthe taxable year in which the failure wascorrected and also to the extent applica-ble, any subsequent taxable year in which

an amount is included in income under§ 409A by the service provider as part ofthe correction.

(2) The information described in§ XII.B.(1) through (4) of this notice, butonly to the extent that the information re-lates to a deferred amount of that serviceprovider.

D. Attachment to Service Provider TaxReturn for Failures Described in §§ Vthrough XI of this Notice

The service provider must attach to theservice provider’s income tax return a copyof the statement the service provider re-ceived from the service recipient with re-spect to each such failure. If a serviceprovider has included an amount in incometo be eligible for relief under this notice,and that inclusion in income occurs in ayear subsequent to the year the plan wascorrected, the service provider must in-clude the statement with the return for theyear of the correction as well as the returnfor the year of income inclusion.

XIII. MODIFICATIONS TO NOTICE2008–113 AND NOTICE 2008–115

A. The following sections are added as§§ III.K and III.L of Notice 2008–113:

“K. Required Repayments by the ServiceProvider

If to qualify for any applicable relief aservice provider is required to repay to theservice recipient an amount erroneouslypaid or made available to the serviceprovider, such as required in §§ IV.A,IV.B, V.B, V.C, VII.B and VII.C, theamount erroneously paid or made avail-able to the service provider refers to thegross amount paid to, or on behalf of, theservice provider, before the applicationof any withholding requirements such asthe Federal employment tax withholdingrequirements. The service provider maysatisfy the requirement to repay the servicerecipient the amount erroneously paid tothe service provider and interest (if ap-plicable) by paying the service recipientthe equivalent amount on or before theapplicable deadline. The service providerwill only be required to pay the servicerecipient the net amount received afterany withholding to the extent the servicerecipient has made a tax correction (e.g.,

an adjustment made on Form 941–X, Ad-justed Employer’s QUARTERLY FederalTax Return or Claim for Refund) to re-cover the amount of taxes withheld on theamount erroneously paid. For purposes ofthis notice, a correction made by the ser-vice recipient to recover Federal or statetaxes withheld on the amount erroneouslypaid shall be considered repayment by theservice provider of an amount equal tothe amount of taxes for which a tax cor-rection is made by the service recipient.Alternatively, in lieu of repayment, theservice recipient may reduce the serviceprovider’s compensation that otherwisewould have been paid on or before the ap-plicable deadline by an equivalent amount.To the extent that, in lieu of repayment,the service recipient reduces other com-pensation that would have been paid to theservice provider, the other compensationthat would have been paid to the serviceprovider, but instead is used to repay theerroneous payment or interest (if applica-ble), is includible in income (and wages ifthe service provider is an employee).

The amount will not be treated as re-paid by the service provider if, in connec-tion with such payment, the service recipi-ent pays the service provider, or otherwiseprovides a benefit (including the provisionof a loan to the service provider or an obli-gation to pay an amount or provide a ben-efit in the future), intended as a substitutefor all or part of the amount the serviceprovider is required to repay the service re-cipient.

L. Determination of Amount ErroneouslyPaid or Amount Erroneously Deferredand the Date an Amount was OtherwisePayable

Generally if an amount has been er-roneously paid to a service provider, theamount must be repaid by the serviceprovider to the service recipient to qual-ify for the relief. For this purpose, if theamount erroneously paid to the serviceprovider was paid in the form of prop-erty (such as stock), the amount that mustbe repaid equals the fair market value ofthe property at the time of the erroneouspayment. Any difference between the fairmarket value of the property at the time ofthe erroneous payment and the fair marketvalue of the property at the time of therepayment is treated as earnings or losses

2010–3 I.R.B. 294 January 19, 2010

in accordance with the applicable sectionof this notice. If the amount erroneouslypaid to the service provider was paid inthe form of property (such as stock), uponrepayment of that amount, earnings andlosses may be credited by otherwise ad-justing the amount of property due to theservice provider under the terms of theplan. For example, a service recipient er-roneously distributes to a service provider100 shares of stock worth $5 per shareon the date of distribution and the distri-bution fails to satisfy the requirements of§ 409A because the shares are not payableunder the terms of the plan until a futuredate. At the time of the correction underthe terms of the applicable section of No-tice 2008–113 (as modified), the servicerecipient’s stock is worth $10 per share.To satisfy the repayment requirement, theservice provider must pay the service re-cipient $500 (the amount of shares equalto the fair market value of the shares onthe date of the erroneous payment) whichmay be accomplished through the returnof 50 shares. If the applicable section ofthis notice does not allow for the creditingof earnings, or the service recipient doesnot otherwise credit earnings, one methodby which the service recipient may adjustfor the earnings is by reducing the numberof shares due to the service provider underthe terms of the plan to 50 shares.

Generally if an amount has been erro-neously deferred on behalf of a serviceprovider, the service recipient must pay theamount erroneously deferred to the serviceprovider to qualify for the relief. If theamount of the erroneous deferral was setas a dollar amount, the amount of the erro-neous deferral equals the dollar amount re-gardless of whether the erroneous deferralwas invested in, or subsequently denomi-nated as, an amount of property (such as anumber of shares of stock). If the amountof the erroneous deferral was based on cer-tain property (for example, a certain num-ber of shares of stock), the amount of theerroneous deferral equals the fair marketvalue of the property at the time it wouldotherwise have been payable to the ser-vice provider had the erroneous deferralnot occurred. For this purpose, the datethe amount of the erroneous deferral ispayable to the service provider is the firstdate under the plan during the taxable yearthat the amount became payable under the

plan (disregarding any ability to pay up to30 days early under §1.409A–3(d)).”

B. The following section replaces sectionV.D.2(a) of Notice 2008–113:

“(a) A failure is described in this§ V.D.2(a) if, under the terms of a planand an applicable deferral election, and§ 409A, an amount that should not havebeen deferred compensation under theplan is erroneously credited to the serviceprovider’s account or otherwise treatedas deferred compensation under the plan,and such excess amount otherwise wouldhave been paid to the service providerduring the service provider’s taxable yearin which the excess amount was incor-rectly credited to the service provider’saccount or otherwise treated as deferredcompensation under the plan. A failureis also described in this § V.D.2(a) if, un-der the terms of a plan and an applicabledeferral election, and § 409A, an amountthat should have been paid under the planis not paid to the service provider duringthe taxable year in which falls the pay-ment date (as determined under § III.K ofthis notice), and the failure to make suchpayment results in an operational failureunder § 409A(a).”

C. Modification of Notice 2008–115

For service recipients and serviceproviders who are entitled to relief underthis notice, Notice 2008–115, 2008–52I.R.B. 1367 (relating to reporting andwage withholding for 2008 and subse-quent years), is modified to conform tothe provisions of this notice (includingthe modifications to Notice 2008–113contained in § XIII.A and B of this no-tice) with respect to (i) the amount thatis required to be included in income by aservice provider under § 409A(a), and (ii)the amount that is required to be reportedby the service recipient as an amount in-cludible in income under § 409A(a) onForm W–2, Box 1 and Box 12 using CodeZ, or Form 1099–MISC, Box 7 and Box15b, as applicable.

XIV. EFFECT ON OTHERDOCUMENTS

Taxpayers may rely on this Notice2010–6 for taxable years beginning on

or after January 1, 2009. The modi-fications to Notice 2008–113 (relatingto operational corrections) contained in§ XIII.A and B of this notice are effec-tive for service provider taxable yearsbeginning on or after January 1, 2010,but may be relied upon by taxpayers forservice provider taxable years beginningbefore January 1, 2010; this notice doesnot otherwise affect the guidance providedin Notice 2008–113. The modifications toNotice 2008–115 (relating to reporting andwage withholding for 2008 and subsequentyears) described in § XIII.C of thisnotice are generally effective for serviceprovider taxable years beginning on orafter January 1, 2009; provided, however,that the modifications to Notice 2008–115as a result of the guidance modifyingNotice 2008–113 (relating to operationalcorrections) contained in § XIII.A andB of this notice are effective for serviceprovider taxable years beginning on orafter January 1, 2010, but may be reliedupon by taxpayers for service providertaxable years beginning before January 1,2010.

XV. REQUEST FOR COMMENTS

The Treasury Department and the IRSrequest comments regarding other docu-ment failures that commonly occur andmethods to correct them. Comments mustbe submitted by April 5, 2010. All mate-rials submitted will be available for publicinspection and copying. Comments maybe submitted to Internal Revenue Service,CC:PA:LPD:RU (Notice 2010–6), Room5203, PO Box 7604, Ben Franklin Station,Washington, DC 20044. Submissions mayalso be hand-delivered Monday throughFriday between the hours of 8 a.m. and 4p.m. to the Courier’s Desk at 1111 Con-stitution Avenue, NW, Washington, DC20224, Attn: CC:PA:LPD:RU (Notice2010–6), Room 5203. Submissions mayalso be sent electronically via the inter-net to the following email address: No-tice.comments@irscounsel.treas.gov. In-clude the notice number (Notice 2010–6)in the subject line.

XVI. PAPERWORK REDUCTIONACT

The collection of information containedin this notice has been reviewed and ap-proved by the Office of Management and

January 19, 2010 295 2010–3 I.R.B.

Budget in accordance with the PaperworkReduction Act (44 USC. 3507) under con-trol number 1545–2164.

An agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validcontrol number.

The collection of information in this no-tice is in § XII. This information is requiredto determine whether the taxpayers claim-ing the relief are eligible for the relief andthat the applicable requirements for reliefare met. The likely respondents are corpo-rations and individuals.

The estimated annual reporting and/orrecordkeeping burden is 5,000 hours.

The estimated annual burden per re-spondent/recordkeeper is .5 hours.

The estimated number of respondents is10,000.

The estimated annual frequency of re-sponse is on occasion.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax return and tax returninformation are confidential, as requiredby § 6103.

XVII. DRAFTING INFORMATION

The principal author of this notice isKeith Ranta of the Office of DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities), al-though other Treasury and IRS officialsparticipated in its development. For fur-ther information on the provisions ofthis notice, contact Keith Ranta at (202)927–9639 (not a toll-free number).

Extension of TemporaryRules Allowing GovernmentalIssuers to Purchase and HoldTheir Own Tax-Exempt Bonds

Notice 2010–7

SECTION 1. PURPOSE

This notice modifies Notice 2008–88,2008–42 I.R.B. 933 (October 20, 2008),to extend the expiration dates from De-cember 31, 2009 to December 31, 2010

of certain temporary rules allowing stateand local governmental issuers to purchaseand hold their own tax-exempt bonds un-der special reissuance standards for tax-ex-empt bonds. The intent of the extensionsof these temporary rules is to facilitate liq-uidity and stability in the tax-exempt bondmarket in recognition of some continu-ing credit enhancement and liquidity con-straints in this market.

Notice 2008–88 amended and supple-mented Notice 2008–41, 2008–15 I.R.B.742 (April 14, 2008), regarding reissuancestandards for tax-exempt bonds to expandthe circumstances and time periods dur-ing which the Treasury Department and theInternal Revenue Service (“IRS”) wouldtreat a tax-exempt bond that is purchasedby its state or local governmental issuer ascontinuing in effect without resulting in areissuance or retirement of the purchasedbond solely for purposes of § 103 and§§ 141 through 150 of the Internal Rev-enue Code, as amended (“Code”). (Exceptas noted, section references in this noticeare to the Code and the Income Tax Regu-lations). Defined terms in Notice 2008–41and Notice 2008–88 shall have the samemeanings when used in this notice.

SECTION 2. BACKGROUND

A debt instrument generally is treatedas retired or extinguished when an issueracquires its own debt because a merger ofthe interests of the issuer and the holder oc-curs. Notice 2008–41 provides that undercertain rules for qualified tender bonds, abond purchased by or on behalf of a gov-ernmental issuer pursuant to a qualifiedtender right is not retired until the end ofthe 90-day period from and after the dateof such purchase. In response to liquidityconstraints in the tax exempt bond market,§ 3.2(3)(b) of Notice 2008–41 extendedthe 90-day period to 180-days for any pur-chase by or on behalf of a governmentalissuer pursuant to a qualified tender rightas long as such purchase occurred beforeOctober 1, 2008.

In response to auction failures in theauction rate bond sector of the tax-exemptbond market, Notice 2008–41 providedother temporary rules. Section 4 of Notice2008–41 allowed governmental issuersto purchase their own tax-exempt auctionrate bonds on a temporary basis without

resulting in a reissuance or retirement ofthe purchased tax-exempt bonds solely forpurposes of § 103 and §§ 141 to 150 if thegovernmental issuer purchased the tax-ex-empt auction rate bonds before October 1,2008, and held those bonds for not morethan a 180-day period from the date ofpurchase. Section 6.2 of Notice 2008–41allowed temporary waivers of interest ratecaps on auction rate bonds to be disre-garded in determining whether there wasa significant modification of such bondsunder § 1.1001–3(e)(2) if the agreementto waive such a cap and the period duringwhich such waiver was in effect both werewithin the period between November 1,2007 and October 1, 2008.

In light of the then-continuing liquid-ity constraints in the tax-exempt bond mar-ket, Notice 2008–88 expanded the typesof bonds eligible for relief under Notice2008–41 and extended the time period forsuch relief provisions to apply. Section 3.1of Notice 2008–88 provided that tax-ex-empt qualified tender bonds and tax-ex-empt commercial paper purchased by agovernmental issuer would continue in ef-fect without resulting in a reissuance or re-tirement of such bonds if, irrespective ofwhen the governmental issuer purchasedsuch bonds, the governmental issuer heldthe bonds until not later than December 312009. In addition, § 3.1 of Notice 2008–88clarified that, in the case of the purchaseof any particular obligation of tax-exemptcommercial paper, including a purchase atmaturity, a refinancing of that purchasedtax-exempt commercial paper during thepermitted holding period would be treatedas part of the same issue as that of the pur-chased tax-exempt commercial paper.

Section 3.2 of Notice 2008–88 ex-tended the application of the special180-day holding period (in lieu of thegeneral 90-day holding period) for quali-fied tender bonds to those qualified tenderbonds purchased pursuant to qualifiedtender rights until December 31, 2009.In addition, § 3.2 of Notice 2008–88 ex-tended the application of § 6.2 of Notice2008–41 to disregard certain waivers ofinterest rate caps on tax-exempt auctionrate bonds until December 31, 2009.

2010–3 I.R.B. 296 January 19, 2010

SECTION 3. INTERIM GUIDANCEAND RELIANCE

3.1 In General

Pending the promulgation and effectivedate of future administrative or regulatoryguidance, taxpayers may rely on the in-terim guidance provided in this notice.

3.2 Extension of Certain TemporaryRules

Section 3.1 of Notice 2008–88 regard-ing purchases by a governmental issuerof qualified tender bonds or tax-exemptcommercial paper is amended to extendthe final date for a governmental issuerto purchase or hold such tax-exemptbonds without resulting in a reissuanceor retirement of the purchased bondsuntil December 31, 2010. In addition,refinancing of purchased tax-exemptcommercial paper during this extendedperiod will continue to be treated aspart of the same issue as the purchasedtax-exempt commercial paper.

The provision of § 3.2 of Notice2008–88 that extended § 3.2(3)(b) of No-tice 2008–41 regarding the purchase ofbonds pursuant to qualified tender rightsfor which the special 180-day holding pe-riod applies is amended to extend the finaldate for such purchases to December 31,2010.

The provision of § 3.2 of Notice2008–88 that extended § 6.2 of Notice2008–41 regarding the treatment of certainwaivers of interest rate caps on tax-exemptauction rate bonds is amended to extendthe final date on which covered waiversare disregarded to December 31, 2010.

SECTION 4. EFFECT ON OTHERDOCUMENTS

This notice modifies Notice 2008–88and Notice 2008–41.

SECTION 5. EFFECTIVE DATE

This notice is effective as of March 25,2008, which is the effective date of Notice2008–88 and Notice 2008–41. Issuers oftax-exempt bonds may apply and rely onthis notice to the same extent and in thesame manner as provided in § 8 of Notice2008–41.

SECTION 6. DRAFTINGINFORMATION

The principal author of this noticeis Aviva M. Roth, Office of the ChiefCounsel (Financial Institutions and Prod-ucts). However, other personnel from theIRS and the Treasury Department par-ticipated in its development. For furtherinformation regarding this notice, contactAviva M. Roth at (202) 622–3980 (not atoll-free call).

Extension of the Timeframefor Disclosures to PersonsDesignated in a WrittenRequest or Consent Pursuantto Section 6103(c)

Notice 2010–8

This notice provides interim rules ex-tending the period for submission to theIRS (or an agent or contractor of the IRS)of taxpayer authorizations permitting dis-closure of returns and return informationpursuant to section 6103(c). Specifically,this notice extends from 60 days to 120days the period within which a signed anddated authorization must be received bythe IRS in order for it to be effective. TheIRS will apply the interim rules in this no-tice until the Treasury Department and theIRS amend the regulation under section6103(c).

BACKGROUND

Section 6103(c) provides that, sub-ject to the requirements and conditionsset forth by the Secretary in the regula-tion, returns and return information maybe disclosed to persons designated bythe taxpayer in a request for or consentto disclosure. The Treasury Regulationunder section 6103(c) sets out the require-ments for such disclosures to designees.26 C.F.R. 301.6103(c)–1(b). An autho-rization for disclosure must include thefollowing items in a written documentpertaining solely to the authorization: (1)the taxpayer’s identity (name, address,taxpayer identifying number) that enablesthe IRS to clearly identify the taxpayer;(2) the identity of the person to whom dis-closure is to be made; (3) the type of return

or return information to be disclosed; and(4) the taxable year or years covered bythe return or return information. 26 C.F.R.301.6103(c)–1(b)(1). The taxpayer mustsign and date the written document.

The regulation bars disclosure of a re-turn or return information unless the writ-ten request for or written consent to dis-closure is received by the IRS (or an agentor contractor of the IRS) within 60 daysfollowing the date upon which the writtenrequest was signed and dated by the tax-payer. 26 C.F.R. 301.6103(c)–1(b)(2).

INTERIM GUIDANCE

The IRS recognizes the importance oflimiting the effective period of authoriza-tions provided pursuant to section 6103(c).Reasonable limitation on the effective pe-riod of written authorizations helps ensurethe currency of the authorization and pro-tects taxpayer privacy. The current 60 dayperiod, however, has proven problematic.Some institutions charged with assistingtaxpayers in their financial dealings haveencountered difficulty in obtaining writtenauthorizations and submitting the autho-rizations to the IRS within the 60 days al-lowed by the existing regulation. To re-duce burdens on taxpayers and the institu-tions and professionals assisting them, theIRS will amend the regulation under sec-tion 6103(c) to extend from 60 days to 120days the effective period of taxpayer-pro-vided authorizations. In the interim, dis-closures otherwise permitted under section6103(c) will be made provided the IRS re-ceives the written authorization within 120days following the date upon which the re-quest or consent was signed and dated bythe taxpayer. This interim rule will applyto all authorizations executed on or afterthe date that is sixty days prior to the pub-lication of this notice.

COMMENTS

Interested parties are invited to sub-mit comments on this notice by Jan-uary 25, 2010. Written commentsshould be submitted to: Internal Rev-enue Service; CC:PA:LPD:PR (No-tice 2010–8); Room 5203; P.O. Box7604; Ben Franklin Station; Washing-ton, DC 20044. Alternatively, com-ments may be hand delivered betweenthe hours of 8:00 a.m. and 4:00 p.m.

January 19, 2010 297 2010–3 I.R.B.

Monday to Friday to: CC:PA:LPD:PR(Notice 2010–8); Courier’s Desk; InternalRevenue Service; 1111 ConstitutionAvenue, NW; Washington, DC. Commentsmay also be transmitted electronicallyvia the following e-mail address:Notice.Comments@irscounsel.treas.gov.Please include “Notice 2010–8” inthe subject line of any electroniccommunications. All comments willbe available for public inspection andcopying in their entirety.

EFFECTIVE DATE FOR INTERIMGUIDANCE

These interim rules regarding the ef-fective period for authorizations of disclo-sures to third-party designees are applica-ble from the date of publication of this no-tice. Forthcoming changes to the exist-ing regulation under section 6103(c) willbe applicable, once promulgated, as of thepublication date of this notice.

DRAFTING INFORMATION

The principal author of this notice isMark E. Cottrell of the Office of Asso-ciate Chief Counsel (Procedure & Admin-istration). For further information regard-ing this notice, contact Mark E. Cottrell at(202) 622–4570 (not a toll-free call).

Certain Annual Tax ReportingStatements May be Furnishedby February 16, 2010,Without Penalty

Notice 2010–9

PURPOSE

This notice provides additional timefor furnishing certain annual tax reportingstatements for reportable items from cal-endar year 2009.

BACKGROUND

Section 403 of the Energy Improve-ment and Extension Act of 2008, Div. Bof Pub. L. No. 110–343, 122 Stat. 3765,enacted on October 3, 2008, amended sec-tion 6045(b) to change from January 31 toFebruary 15 the deadline for furnishing to

customers the information statements re-quired by section 6045. These statementsare Form 1099–B, “Proceeds From Brokerand Barter Exchange Transactions”; Form1099–S, “Proceeds From Real EstateTransactions”; and, when reporting pay-ments to attorneys or substitute paymentsby brokers in lieu of dividends or inter-est, Form 1099–MISC, “MiscellaneousIncome.” Because February 15, 2010, isa Federal holiday, filers of these state-ments will meet the deadline under section6045(b) for reportable items from calendaryear 2009 if they furnish the statementsby February 16, 2010. See section 7503.Section 6722 imposes a penalty on anyreporting entity that fails to furnish anyrequired payee statement by its deadline.

The Act also added language to sec-tion 6045(b) to permit reporting entities, inthe case of a “consolidated reporting state-ment (as defined in regulations),” to fur-nish by February 15 a statement that oth-erwise would be required by January 31.Because January 31, 2010, is a Sunday, in-formation returns that are ordinarily due onJanuary 31 will be timely if they are fur-nished by February 1, 2010. See section7503. There is not yet a regulatory defi-nition of the term “consolidated reportingstatement.”

On February 2, 2009, the IRS publishedNotice 2009–11, 2009–5 I.R.B. 420, whichprovided that, for reportable items fromcalendar year 2008, brokers had until Feb-ruary 17, 2009, to report all items that theycustomarily reported on their annual com-posite form recipient statements. Notice2009–11 applied to reportable items fromcalendar year 2008 only.

DEADLINE FOR REPORTING ITEMSFROM 2009

This notice applies to reporting enti-ties that are required to furnish informa-tion statements under section 6045. Thisnotice provides that such reporting entitieshave until February 16, 2010, to report anyitem that they would otherwise be requiredto report by February 1, 2010, if the report-ing entity furnishes the reporting statementto the same recipient or same group of re-cipients on the same date as a statement re-porting items required by section 6045 (re-gardless of whether the statements relate tothe same or different accounts or transac-tions). This additional time applies only to

items that a reporting entity must report toa recipient based on the same relationshipbetween the reporting entity and the recip-ient as the items required by section 6045(for example, broker, payor, or real estatesettlement agent to customer), and not asa result of any other relationship betweenthe parties such as debtor to creditor or em-ployer to employee.

Accordingly, the additional time pro-vided by this notice applies to the follow-ing forms if the requirements of this noticeare met: Form 1099–DIV, “Dividends andDistributions”; Form 1099–INT, “InterestIncome”; Form 1099–MISC, “Miscella-neous Income”; Form 1099–OID, “Orig-inal Issue Discount”; Form 1099–PATR,“Taxable Distributions Received FromCooperatives”; Form 1099–Q, “PaymentsFrom Qualified Education Programs (Un-der Sections 529 and 530)”; Form 1099–R,“Distributions From Pensions, Annuities,Retirement or Profit-Sharing Plans, IRAs,Insurance Contracts, etc.”; and Form5498, “IRA Contribution Information.”

This notice also provides that, if a cus-tomer has an account with a securities bro-ker for which a Form 1099–B would be re-quired to be furnished under section 6045if a sale had occurred during the year, theadditional time permitted by this notice ap-plies to other items the broker must re-port to the customer based on the bro-ker-to-customer relationship regardless ofwhether the customer’s transactional his-tory for 2009 triggered an obligation to fur-nish Form 1099–B to that customer, pro-vided that the statement reporting the otheritems is furnished on the same date as thedate on which the Form 1099–B wouldhave been furnished.

This notice modifies the 2009 GeneralInstructions for Forms 1099, 1098, 3921,3922, 5498, and W–2G and applies to thereporting of items from calendar year 2009only.

EXAMPLE

This notice is illustrated by the follow-ing example:

Broker, a securities broker, customarily furnishesan annual composite form recipient statement (asdescribed in Section 4.2 of Rev. Proc. 2008–36,2008–33 I.R.B. 340) to its customers in order toreport dividends as required by section 6042(c) andthe gross proceeds of the sale of securities and otheritems as required by section 6045(b). To report inter-est or original issue discount as required by section

2010–3 I.R.B. 298 January 19, 2010

6049(c), Broker customarily furnishes separate Form1099–INT and Form 1099–OID statements to itscustomers instead of reporting these items on thecomposite form recipient statement.

For calendar year 2009, Broker furnished annualcomposite form recipient statements on February11, 2010, to all customers with taxable accountsthat received reportable dividends or sold securitiesor other items in 2009. Because only 80 percentof the customers receiving these composite formrecipient statements sold securities or other itemsin 2009, only 80 percent of the annual compositeform recipient statements contained information thatsection 6045(b) requires to be reported, whereas theremaining 20 percent of the annual composite formrecipient statements contained only dividend infor-mation required to be reported by section 6042(c).

Broker also furnished Form 1099–INT and Form1099–OID statements on February 11, 2010, to allcustomers with taxable accounts with interest or orig-inal issue discount required to be reported under sec-tion 6049(c). To certain customers, Broker furnishedonly Form 1099–INT or Form 1099–OID or both anddid not furnish a composite form recipient statementbecause these customers did not receive reportabledividends and did not sell securities or other items in2009.

As set forth in this notice, the IRS will treat Bro-ker as having met its reporting deadline requirementsunder sections 6042(c) and 6049(c) for items fromcalendar year 2009 because: (1) sections 6042(c)and 6049(c) otherwise require Broker to furnishstatements for these items on or before February 1,2010; (2) Broker reported these items on a statementfurnished on or before February 16, 2010; (3) Brokerreported these items on a statement furnished to eachcustomer on the same date that Broker either: (a)furnished to the customer a statement reporting itemsrequired by section 6045, or (b) would have fur-nished Form 1099–B to the customer if the customerhad sold securities during the year; and (4) Brokerwas required to report these items to the customer asa result of the same broker-to-customer relationshipas its obligation under section 6045. The IRS willtherefore not assess any penalties under section 6722based on the date that Broker furnished the state-ments reporting the items required under sections6042(c) and 6049(c) even though some customersreceived a composite form recipient statement thatreported no sales and other customers received nocomposite form recipient statement.

EFFECT ON OTHER DOCUMENTS

Notice 2009–11 is amplified.

DRAFTING INFORMATION

The principal author of this noticeis Stephen Schaeffer of the Office ofAssociate Chief Counsel (Procedure &Administration). For further informa-tion regarding this notice, please contactStephen Schaeffer at (202) 622–4910 (nota toll-free call).

Tax-Exempt Bonds in CertainDisaster Areas

Notice 2010–10

SECTION 1. PURPOSE

This notice provides guidance on thetax-exempt bond provisions for the Mid-western and Hurricane Ike disaster areasunder the Heartland Disaster Tax ReliefAct of 2008, Subtitle A of Title VII ofthe Tax Extenders and Alternative Mini-mum Tax Relief Act of 2008 (Division Cof Public Law 110–343, 122 Stat. 3765,enacted on October 3, 2008) (Act) and§ 1400N(a) of the Internal Revenue Code(Code), as modified by the Act. This no-tice also provides guidance on reimburse-ment expenditures made with proceeds oftax-exempt bonds issued for Midwesternand Hurricane Ike disaster areas and tax-exempt “Qualified Gulf Opportunity ZoneBonds” issued under § 1400N(a) of theCode. (Except as noted, section referencesin this Notice are to the Code and the In-come Tax Regulations.)

SECTION 2. BACKGROUND

Section 1400N(a) of the Code permitscertain tax-exempt bond financing in aGulf Opportunity Zone, which includesareas in the States of Alabama, Louisianaand Mississippi affected by Hurricane Ka-trina.

The Act authorizes certain tax-exemptbond financing in a Midwestern disasterarea as defined under § 702(b) of the Actwhich includes certain counties in cer-tain Midwestern States affected by severestorms, tornados, or flooding (MidwesternDisaster Area), and in a Hurricane Ikedisaster area as defined under § 704(c) ofthe Act which includes certain counties inTexas and parishes in Louisiana affectedby Hurricane Ike (Hurricane Ike Disas-ter Area). These disasters are sometimesreferred to in this Notice as “MidwesternDisaster” and “Hurricane Ike,” respec-tively.

Sections 702 and 704 of the Act pro-vide generally that the special provisionsfor tax-exempt bond financing in the GulfOpportunity Zone under § 1400N(a) ofthe Code apply with certain modifica-tions to tax-exempt bond financing in theMidwestern and Hurricane Ike Disaster

Areas. Tax-exempt bonds that meet thesemodified requirements are referred toas “Qualified Midwestern Disaster AreaBonds” or “Qualified Hurricane Ike Dis-aster Area Bonds” in relevant provisionsof § 1400N(a), as modified by the Act.

Previously, in Notice 2008–109,2008–50 I.R.B. 1282 (December 15,2008), the Internal Revenue Service (IRS)provided guidance on the counties in-cluded within the Midwestern and Hurri-cane Ike Disaster Areas and the relevantState population information needed todetermine the State volume caps applica-ble to these disaster area bonds.

Sections 702(d)(1)(A)(i) and704(a)(1)(A) of the Act generally providea modified definition of qualified projectcosts under § 1400N(a)(2)(A)(i) that maybe financed with Qualified MidwesternDisaster Area Bonds and Qualified Hur-ricane Ike Disaster Area Bonds that treatcosts as qualified project costs only if: (1)in the case of a project involving a privatebusiness use (as defined in § 141(b)(6)),either the person using the propertysuffered a loss in a trade or businessattributable to a Midwestern Disaster orHurricane Ike or is a person designated forpurposes of this section by the Governorof the State in which the project is locatedas a person carrying on a trade or businessreplacing a trade or business with respectto which another person suffered sucha loss, and, (2) in the case of a projectrelating to public utility property, theproject involves repair or reconstructionof public utility property damaged by aMidwestern Disaster or Hurricane Ike.

Sections 702(d)(1)(C) and 704(a)(3)of the Act modify § 1400N(a)(2)(C) torequire that Qualified Midwestern Disas-ter Area Bonds and Qualified HurricaneIke Disaster Area Bonds be “designated”for volume cap allocation purposes on thebasis of providing assistance to areas inthe order in which such assistance is mostneeded.

Certain interpretive questions havearisen under the Act regarding determina-tions of qualified project costs, designa-tions of areas of greatest need, the scopeof gubernatorial discretion on these mat-ters, and the scope of eligible financing bypublic utilities with Qualified MidwesternDisaster Area Bonds and Qualified Hurri-cane Ike Disaster Area Bonds. In addition,certain interpretive questions have arisen

January 19, 2010 299 2010–3 I.R.B.

on the use of proceeds of Qualified Mid-western Disaster Area Bonds, QualifiedHurricane Ike Disaster Area Bonds andQualified Gulf Opportunity Zone Bondsissued under § 1400N(a) to finance “re-imbursements” of original expenditurespreviously paid from other sources offunds after the date of the occurrenceof the applicable disaster under the gen-eral reimbursement expenditure rules fortax-exempt bonds.

SECTION 3. INTERIM GUIDANCEAND RELIANCE

3.1 In General

Pending the promulgation and effectivedate of future administrative or regulatoryguidance, taxpayers may rely on the in-terim guidance provided in this notice.

3.2 Certain Determinations of QualifiedProject Costs for Projects InvolvingPrivate Business Use

In the case of a project involving pri-vate business use under § 141(b)(6), forpurposes of determining qualified projectcosts that may be financed with proceedsof Qualified Midwestern Disaster AreaBonds and Qualified Hurricane Ike Disas-ter Area Bonds under § 1400N(a)(2)(A)(i),as modified by the Act, the determinationof whether a loss in a trade or businesshas been suffered and whether a person iscarrying on a trade or business replacinga trade or business with respect to whichanother person suffered such a loss may bemade by the Governor of the State in whichthe project is located in any reasonablemanner as the Governor shall determine ingood faith in such Governor’s discretion.In addition, a duly authorized designee ofsuch Governor under applicable State lawmay make these determinations.

Section 3.3 Qualified Project Costs forPublic Utility Property

In the case of a project relating to publicutility property, qualified project costs thatmay be financed with proceeds of Qual-ified Midwestern Disaster Area Bondsand Qualified Hurricane Ike Disaster AreaBonds include the repair or reconstructionof public utility property (as defined in§ 168(i)(10)) damaged by a Midwestern

Disaster or Hurricane Ike, as applicable, asprovided in § 1400N(a)(2)(A)(i), as modi-fied by the Act. In addition, public utilitiesmay also use proceeds of Qualified Mid-western Disaster Area Bonds and Quali-fied Hurricane Ike Disaster Area Bonds tofinance qualified project costs of projectsinvolving private business use under thefirst prong of the definition of qualifiedproject costs under § 1400N(a)(2)(A)(i),as modified by the Act, as more particu-larly described in § 3.2 of this Notice.

Section 3.4 Designations of Areas ofGreatest Need

For purposes of the requirement todesignate allocations of Qualified Mid-western Disaster Area Bonds and Quali-fied Hurricane Ike Disaster Area Bondsto provide assistance to areas in the orderin which such assistance is most neededunder § 1400N(a)(2)(C), as modified bythe Act, the Governor of the State in whichthe Qualified Midwestern Disaster AreaBonds and Qualified Hurricane Ike Dis-aster Area Bonds are issued or the BondCommission of such State required toapprove such bonds, as applicable under§ 1400N(a)(2)(C), may make such desig-nations in any reasonable manner as suchGovernor or Bond Commission shall de-termine in good faith in the discretion ofsuch Governor or Bond Commission, asapplicable. In addition, a duly authorizeddesignee of such Governor or Bond Com-mission under applicable State law maymake these determinations.

Section 3.5 Certain ReimbursementExpenditures

The reimbursement expenditure rulesunder § 1.150–2 of the Income Tax Reg-ulations apply to Qualified MidwesternDisaster Area Bonds, Hurricane Ike Dis-aster Area Bonds, and Qualified GulfOpportunity Zone Bonds in the samemanner as they apply to exempt facilitybonds under § 1.142–4, except that, in thecase of these disaster area bonds, issuersare treated as having met the official in-tent requirement under § 1.150–2(e) fororiginal expenditures paid on or after thedate of the occurrence of the applicabledisaster (i.e., the Midwestern Disaster,Hurricane Ike, or Hurricane Katrina) andbefore December 31, 2009. Further, in

the case of Qualified Midwestern DisasterArea Bonds, Hurricane Ike Disaster AreaBonds, and Gulf Opportunity Zone Bonds,the maximum reimbursement period un-der § 1.150–2(d)(2) is treated as ending noearlier than December 31, 2010.

SECTION 4. EFFECTIVE DATE

This Notice is effective on December18, 2009. This notice applies to Qual-ified Midwestern Disaster Area Bondsand Qualified Hurricane Ike Disaster AreaBonds issued after October 3, 2008. Inaddition, § 3.5 of this notice on reim-bursement expenditures also applies toQualified Gulf Opportunity Zone Bondsissued after December 21, 2005.

SECTION 5. DRAFTINGINFORMATION

The principal authors of this noticeare Carla A. Young and James A. Polfer,Office of the Associate Chief Counsel(Financial Institutions and Products).However, other personnel from the IRSand the Treasury Department partici-pated in its development. For furtherinformation regarding this notice, contactJames A. Polfer at (202) 622–3980 (not atoll-free call).

26 CFR 1.61–21: Taxation of Fringe Benefits.(Also: §§ 61, 280F.)

Rev. Proc. 2010–10

SECTION 1. PURPOSE

.01 This revenue procedure provides:(1) the maximum value of employer-pro-vided vehicles first made available to em-ployees for personal use in calendar year2010 for which the vehicle cents-per-milevaluation rule provided under section1.61–21(e) of the Income Tax Regula-tions may be applicable is $15,300 for apassenger automobile and $16,000 for atruck or van; (2) the maximum value ofemployer-provided vehicles first madeavailable to employees for personal use incalendar year 2010 for which the fleet-av-erage valuation rule provided under sec-tion 1.61–21(d) of the regulations maybe applicable is $20,300 for a passengerautomobile and $21,000 for a truck or van.

2010–3 I.R.B. 300 January 19, 2010

SECTION 2. BACKGROUND

.01 If an employer provides an em-ployee with a vehicle that is availableto the employee for personal use, thevalue of the personal use must generallybe included in the employee’s incomeand wages. Internal Revenue Code § 61;Treas. Reg. § 1.61–21.

.02 For employer-provided passen-ger automobiles (including trucks andvans) made available to employees forpersonal use that meet the requirementsof section 1.61–21(e)(1) of the regula-tions, generally the value of the personaluse may be determined under the vehiclecents-per-mile valuation rule of section1.61–21(e). However, regulations section1.61–21(e)(1)(iii)(A) provides that for apassenger automobile first made avail-able after 1988 to any employee of theemployer for personal use, the value ofthe personal use may not be determinedunder the vehicle cents-per-mile valuationrule for a calendar year if the fair marketvalue of the passenger automobile (de-termined pursuant to regulations section1.61–21(d)(5)(i) through (iv)) on the firstdate the passenger automobile is madeavailable to the employee exceeds a spec-ified dollar limit.

.03 For employer-provided vehiclesavailable to employees for personal use foran entire year, generally the value of thepersonal use may be determined under theautomobile lease valuation rule of section1.61–21(d) of the regulations. Under thisvaluation rule, the value of the personaluse is the Annual Lease Value. Providedthe requirements of regulation section1.61–21(d)(5)(v) are met, an employerwith a fleet of 20 or more automobilesmay use a fleet-average value for purposesof calculating the Annual Lease Values ofthe automobiles in the employer’s fleet.The fleet-average value is the averageof the fair market values of all the auto-mobiles in the fleet. However, section1.61–21(d)(5)(v)(D) of the regulationsprovides that for an automobile first madeavailable after 1988 to an employee of theemployer for personal use, the value of thepersonal use may not be determined underthe fleet-average valuation rule for a cal-endar year if the fair market value of theautomobile (determined pursuant to reg-ulations section 1.61–21(d)(5)(i) through(v)) on the first date the passenger auto-

mobile is made available to the employeeexceeds a specified dollar limit.

.04 The maximum passenger automo-bile values for applying the vehicle cents-per-mile and the fleet-average value rulesreflect the automobile price inflation ad-justment of Code section 280F(d)(7). Themethod of calculating this price inflationamount for automobiles other than trucksand vans uses the “new car” component ofthe CPI “automobile component”. Whencalculating this price inflation adjustmentfor trucks and vans, the “new trucks” com-ponent of the CPI is used. This resultsin somewhat higher maximum values fortrucks and vans. This change reflects thehigher rate of price inflation that trucks andvans have been subject to since 1988, andis consistent with the change announced inRev. Proc. 2003–75, 2003–2 C.B. 1018,for purposes of calculating depreciationdeductions. See also Rev. Proc. 2009–24,2009–17 I.R.B. 885. For purposes of thisrevenue procedure, the term “trucks andvans” refers to passenger automobiles thatare built on a truck chassis, including mini-vans and sport utility vehicles (SUVs) thatare built on a truck chassis.

SECTION 3. PROCEDURE

.01 Maximum Automobile Value forUsing the Vehicle Cents-per-mile Val-uation Rule. An employer providing apassenger automobile for the first time incalendar year 2010 for the personal useof any employee may determine the valueof the personal use by using the vehiclecents-per-mile valuation rule in section1.61–21(e) of the regulations if its fairmarket value on the date it is first madeavailable does not exceed $15,300 for apassenger automobile other than a tuckor van, or $16,000 for a truck or van. Ifthe fair market value of the passengerautomobile exceeds this amount, the em-ployer may determine the value of thepersonal use under the general valuationrules of regulations section 1.61–21(b) orunder the special valuation rules of section1.61–21(d) (Automobile lease valuation)or section 1.61–21(f) (Commuting valu-ation) if the applicable requirements aremet. See Rev. Proc. 2008–13, 2008–6I.R.B. 407, as modified by Announcement2008–15, 2008–9 I.R.B. 511, for guidanceon determining the maximum value ofpassenger automobiles first made avail-

able during calendar year 2008, and Rev.Proc. 2009–12, 2009–3 I.R.B. 321, forguidance on determining the maximumvalue of passenger automobiles first madeavailable during calendar year 2009.

.02 Maximum Automobile Value forUsing the Fleet-Average Valuation Rule.An employer with a fleet of 20 or moreautomobiles providing an automobile forthe first time in calendar year 2010 forthe personal use of any employee for anentire year may determine the value ofthe personal use by using the fleet-aver-age valuation rule in regulations section1.61–21(d)(5)(v) to calculate the AnnualLease Values of the automobiles in thefleet. The fleet-average valuation rule maynot be used to determine the Annual LeaseValue of any automobile if its fair marketvalue on the date it is first made availableexceeds $20,300 for a passenger automo-bile other than a truck or van, or $21,000for a truck or van. If all other appli-cable requirements are met, an employerwith a fleet of 20 or more vehicles consist-ing of passenger automobiles other thantrucks or vans as well as trucks and vansmay use the fleet-average valuation ruleas long as none of the vehicles exceedtheir respective maximum allowable val-ues. If the fair market value of any passen-ger automobile in the fleet exceeds theseamounts, the employer may determine thevalue of the personal use under regulationssection 1.61–21(f) (Commuting valuation)or the general valuation rules of section1.61–21(b) or may determine the AnnualLease Value of such automobile separatelyunder the automobile lease valuation ruleof section 1.61–21(d)(2) if the applicablerequirements are met.

SECTION 4. EFFECTIVE DATE

This revenue procedure applies to em-ployer-provided passenger automobilesfirst made available to employees for per-sonal use in calendar year 2010.

SECTION 5. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Don M. Parkinson of theOffice of the Division Counsel/AssociateChief Counsel (Tax Exempt & Govern-ment Entities). For further informationregarding the maximum automobile val-

January 19, 2010 301 2010–3 I.R.B.

ues for applying the valuation rules ofregulations section 1.61–21(e)(1)(iii)(A)(the vehicle cents-per-mile valuationrule), and section 1.61–21(d)(5)(v)(D)(the fleet average valuation rule), contactDon M. Parkinson at (202) 622–6040 (nota toll-free call).

26 CFR 601.601: Rules and regulations.(Also: Part I, §§ 301, 305.)

Rev. Proc. 2010–12

SECTION 1. PURPOSE

Rev. Proc. 2009–15, 2009–4 I.R.B.356, amplifying and superseding Rev.Proc. 2008–68, 2008–52 I.R.B. 1373,provides temporary guidance regardingcertain stock distributions by publiclytraded real estate investment trusts (RE-ITs) and regulated investment companies(RICs). This revenue procedure amplifiesand supersedes Rev. Proc. 2009–15.

SECTION 2. BACKGROUND

.01 Section 305(a) of the Internal Rev-enue Code (“Code”) provides that, exceptas otherwise provided in section 305, grossincome does not include the amount of anydistribution of the stock of a corporationmade by such corporation to its sharehold-ers with respect to its stock.

.02 Section 305(b)(1) provides that sec-tion 305(a) shall not apply to a distributionby a corporation of its stock, and the distri-bution shall be treated as a distribution ofproperty to which section 301 applies, ifthe distribution is, at the election of any ofthe shareholders (whether exercised beforeor after the declaration thereof), payableeither in its stock or in property.

.03 Section 305(b)(2) provides that sec-tion 305(a) shall not apply to a distributionby a corporation of its stock, and the distri-bution shall be treated as a distribution ofproperty to which section 301 applies, ifthe distribution (or a series of distributionsof which such distribution is one) has theresult of the receipt of property by someshareholders, and an increase in the pro-portionate interests of other shareholdersin the assets or earnings and profits of thecorporation.

.04 Section 1.305–2(a) of the IncomeTax Regulations provides that under sec-

tion 305(b)(1), if any shareholder has theright to an election or option with respectto whether a distribution shall be made ei-ther in money or any other property, or instock or rights to acquire stock of the dis-tributing corporation, then, with respect toall shareholders, the distribution of stockor rights to acquire stock is treated as a dis-tribution of property to which section 301applies regardless of—

(1) Whether the distribution is actuallymade in whole or in part in stock or in stockrights;

(2) Whether the election or option isexercised or exercisable before or after thedeclaration of the distribution;

(3) Whether the declaration of the dis-tribution provides that the distribution willbe made in one medium unless the share-holder specifically requests payment in theother;

(4) Whether the election governing thenature of the distribution is provided in thedeclaration of the distribution or in the cor-porate charter or arises from the circum-stances of the distribution; or

(5) Whether all or part of the sharehold-ers have the election.

.05 Section 1.305–1(b)(2) provides thatwhere a corporation which regularly dis-tributes its earnings and profits, such as aRIC, declares a dividend pursuant to whichthe shareholders may elect to receive eithermoney or stock of the distributing corpora-tion of equivalent value, the amount of thedistribution of the stock received by anyshareholder electing to receive stock willbe considered to equal the amount of themoney which could have been received in-stead.

.06 Section 852(a) provides, in part, thatexcept for section 852(c), the provisions ofpart I of subchapter M of Chapter 1 shallnot apply to a RIC for a taxable year un-less the deduction for dividends paid (asdefined in section 561 with certain modifi-cations) for the taxable year equals or ex-ceeds a specified amount.

.07 Section 857(a) provides, in part, thatexcept for subsection (d) of section 857and subsection (g) of section 856, the pro-visions of part II of subchapter M of Chap-ter 1 shall not apply to a REIT for a tax-able year unless the deduction for divi-dends paid during the year (as defined insection 561 with certain modifications) forthe taxable year equals or exceeds a speci-fied amount.

.08 Section 562(c) provides that theamount of any distribution shall not beconsidered as a dividend for purposes ofcomputing the dividends paid deductionunder section 561, unless such distributionis pro rata, with no preference to any shareof stock as compared with other sharesof the same class, and with no preferenceto one class of stock as compared withanother class except to the extent that theformer is entitled (without reference towaivers of their rights by shareholders) tosuch preference.

.09 Section 852(b)(7) provides that anydividend declared by a RIC in October,November, or December of any calendaryear and payable to shareholders of recordon a specified date in such a month shallbe deemed to have been received by eachshareholder on December 31 of such cal-endar year, and to have been paid by theRIC on December 31 of such calendar year(or, if earlier, as provided in section 855).The preceding sentence shall apply only ifsuch dividend is actually paid by the RICduring January of the following calendaryear.

.10 Section 855 provides, in relevantpart, that if a RIC declares a dividend priorto the time prescribed by law for the filingof its return for a taxable year (includingthe period of any extension of time grantedfor filing such return), and distributes theamount of such dividend to shareholdersin the 12-month period following the closeof such taxable year and not later than thedate of the first regular dividend paymentmade after such declaration, the amount sodeclared and distributed shall, to the ex-tent the RIC elects in such return, be gener-ally considered as having been paid duringsuch taxable year. Except as provided insection 852(b)(7), the amounts distributedpursuant to this section shall be treated asreceived by the shareholder in the taxableyear in which the distribution is made.

.11 Section 857(b)(9) provides that anydividend declared by a REIT in October,November, or December of any calendaryear and payable to shareholders of recordon a specified date in such a month shallbe deemed to have been received by eachshareholder on December 31 of such cal-endar year, and to have been paid by theREIT on December 31 of such calendaryear (or, if earlier, as provided in section858). The preceding sentence shall applyonly if such dividend is actually paid by

2010–3 I.R.B. 302 January 19, 2010

the REIT during January of the followingcalendar year.

.12 Section 858 provides, in relevantpart, that if a REIT declares a dividendbefore the time prescribed by law for thefiling of its return for a taxable year (in-cluding the period of any extension of timegranted for filing such return), and dis-tributes the amount of such dividend toshareholders in the 12-month period fol-lowing the close of such taxable year andnot later than the date of the first regu-lar dividend payment made after such dec-laration, the amount so declared and dis-tributed shall, to the extent the REIT electsin such return, be generally considered ashaving been paid during such taxable year.Except as provided in section 857(b)(9),the amounts distributed pursuant to sec-tion 858 shall be treated as received by theshareholder in the taxable year in whichthe distribution is made.

.13 If there is a determination with re-spect to a RIC or a REIT that results in anadjustment that produces a tax deficiencyfor any taxable year, there are proceduresunder section 860 that enable the RIC orREIT to make a current distribution toits shareholders (a “deficiency dividend”)that increases the RIC’s or REIT’s divi-dends-paid deduction for the earlier year ofthe deficiency.

SECTION 3. SCOPE ANDAPPLICATION

.01 In general. If a corporation qual-ifies as a RIC or as a REIT under part Ior II, respectively, of subchapter M of theCode and makes a distribution that meetsall of the requirements of section 3.02 ofthis revenue procedure—

(1) The Internal Revenue Service willtreat the distribution of stock as a distribu-tion of property to which section 301 ap-plies by reason of section 305(b), and the

amount of such distribution of stock willbe considered to equal the amount of themoney which could have been received in-stead; and

(2) If some shareholders receive a com-bination of stock and money that differsfrom the combination received by othershareholders and if the fair market value ofthe stock on the date of distribution differsfrom the amount of money which couldhave been received instead, those differ-ences do not cause the distribution to be apreferential dividend under section 562(c).

.02 Requirements for distribution.(1) The distribution is made by the cor-

poration to its shareholders with respect toits stock;

(2) Stock of the corporation is publiclytraded on an established securities marketin the United States;

(3) The distribution is declared on or be-fore December 31, 2012, with respect to ataxable year ending on or before Decem-ber 31, 2011, whether declared and dis-tributed prior to the close of the taxableyear or whether declared and distributedpursuant to the provisions of sections 855,852(b)(7), 858, 857(b)(9), or 860;

(4) Pursuant to such declaration eachshareholder may elect to receive the share-holder’s entire entitlement under the decla-ration in either money or stock of the dis-tributing corporation of equivalent valuesubject to a limitation on the amount ofmoney to be distributed in the aggregate toall shareholders (the “Cash Limitation”),provided that—

(a) such Cash Limitation is not less than10% of the aggregate declared distribution,and

(b) if too many shareholders elect toreceive money, each shareholder electingto receive money will receive a pro rataamount of money corresponding to theshareholder’s respective entitlement underthe declaration, but in no event will any

shareholder electing to receive money re-ceive less than 10% of the shareholder’sentire entitlement under the declaration inmoney;

(5) The calculation of the number ofshares to be received by any shareholderwill be determined, over a period of upto two weeks ending as close as practi-cable to the payment date, based upon aformula utilizing market prices that is de-signed to equate in value the number ofshares to be received with the amount ofmoney that could be received instead. Forpurposes of applying subsection (4) of thisSection 3.02, the value of the shares to bedistributed shall be determined by usingthe formula described in the preceding sen-tence; and

(6) With respect to any shareholder par-ticipating in a dividend reinvestment plan(“DRIP”), the DRIP applies only to the ex-tent that, in the absence of the DRIP, theshareholder would have received the dis-tribution in money under subsection (4) ofthis Section 3.02.

SECTION 4. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2009–15 is amplified andsuperseded.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effectivewith respect to distributions declared onor after January 1, 2008.

SECTION 6. DRAFTINGINFORMATION

The principal author of this revenueprocedure is T. Ian Russell of the Office ofAssociate Chief Counsel (Corporate). Forfurther information regarding this revenueprocedure, contact T. Ian Russell at (202)622–7550 (not a toll-free call).

January 19, 2010 303 2010–3 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

2010–3 I.R.B. i January 19, 2010

Numerical Finding List1

Bulletins 2010–1 through 2010–3

Announcements:

2010-2, 2010-2 I.R.B. 271

Notices:

2010-1, 2010-2 I.R.B. 251

2010-2, 2010-2 I.R.B. 251

2010-3, 2010-2 I.R.B. 253

2010-4, 2010-2 I.R.B. 253

2010-5, 2010-2 I.R.B. 256

2010-6, 2010-3 I.R.B. 275

2010-7, 2010-3 I.R.B. 296

2010-8, 2010-3 I.R.B. 297

2010-9, 2010-3 I.R.B. 298

2010-10, 2010-3 I.R.B. 299

Revenue Procedures:

2010-1, 2010-1 I.R.B. 1

2010-2, 2010-1 I.R.B. 90

2010-3, 2010-1 I.R.B. 110

2010-4, 2010-1 I.R.B. 122

2010-5, 2010-1 I.R.B. 165

2010-6, 2010-1 I.R.B. 193

2010-7, 2010-1 I.R.B. 231

2010-8, 2010-1 I.R.B. 234

2010-9, 2010-2 I.R.B. 258

2010-10, 2010-3 I.R.B. 300

2010-11, 2010-2 I.R.B. 269

2010-12, 2010-3 I.R.B. 302

Revenue Rulings:

2010-1, 2010-2 I.R.B. 248

2010-2, 2010-3 I.R.B. 272

2010-3, 2010-3 I.R.B. 272

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin2009–52, dated December 28, 2009.

January 19, 2010 ii 2010–3 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2010–1 through 2010–3

Notices:

2008-41

Modified by

Notice 2010-7, 2010-3 I.R.B. 296

2008-55

Modified by

Notice 2010-3, 2010-2 I.R.B. 253

2008-88

Modified by

Notice 2010-7, 2010-3 I.R.B. 296

2008-113

Modified by

Notice 2010-6, 2010-3 I.R.B. 275

2008-115

Modified by

Notice 2010-6, 2010-3 I.R.B. 275

2009-11

Amplified by

Notice 2010-9, 2010-3 I.R.B. 298

2009-38

Amplified and superseded by

Notice 2010-2, 2010-2 I.R.B. 251

Revenue Procedures:

80-59

Modified and superseded by

Rev. Proc. 2010-11, 2010-2 I.R.B. 269

87-35

Obsoleted by

Rev. Proc. 2010-3, 2010-1 I.R.B. 110

2009-1

Superseded by

Rev. Proc. 2010-1, 2010-1 I.R.B. 1

2009-2

Superseded by

Rev. Proc. 2010-2, 2010-1 I.R.B. 90

2009-3

Superseded by

Rev. Proc. 2010-3, 2010-1 I.R.B. 110

2009-4

Superseded by

Rev. Proc. 2010-4, 2010-1 I.R.B. 122

2009-5

Superseded by

Rev. Proc. 2010-5, 2010-1 I.R.B. 165

Revenue Procedures— Continued:

2009-6

Superseded by

Rev. Proc. 2010-6, 2010-1 I.R.B. 193

2009-7

Superseded by

Rev. Proc. 2010-7, 2010-1 I.R.B. 231

2009-8

Superseded by

Rev. Proc. 2010-8, 2010-1 I.R.B. 234

2009-9

Superseded by

Rev. Proc. 2010-9, 2010-2 I.R.B. 258

2009-15

Amplified and superseded by

Rev. Proc. 2010-12, 2010-3 I.R.B. 302

2009-25

Superseded by

Rev. Proc. 2010-3, 2010-1 I.R.B. 110

Revenue Rulings:

2008-52

Supplemented and superseded by

Rev. Rul. 2010-2, 2010-3 I.R.B. 272

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28,2009.

2010–3 I.R.B. iii January 19, 2010

January 19, 2010 2010–3 I.R.B.

2010–3 I.R.B. January 19, 2010

January 19, 2010 2010–3 I.R.B.

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