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Application of Code Section 409A to Back-to-Back Arrangement

On June 23, 2017, the IRS Office of Chief Counsel issued Chief Counsel Memorandum Number 201725027 (the ?Ç£Memorandum?Ç¥) addressing the application of Section 409A of the Internal Revenue Code (?Ç£Section 409A?Ç¥) to certain back-to-back arrangements. The taxpayer in the Memorandum managed investment funds, including the funds of a foreign corporation, with whom the taxpayer had entered into an arrangement to defer some of its management and/or performance fees from the foreign corporation (referred to as an ?Ç£ultimate service recipient plan?Ç¥ or ?Ç£USR plan?Ç¥). The taxpayer also sponsored a deferred compensation arrangement for its investment professional employees (referred to as an ?Ç£immediate service recipient plan?Ç¥ or ?Ç£ISR Plan?Ç¥). While the deferral elections and payment triggers of the USR Plan and ISR Plan were coordinated, the USR Plan provided that payment would be made to the taxpayer under the USR Plan even when amounts were forfeited by a participant under the ISR… Continue Reading

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