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IRS Issues Updated Guidance Regarding Substantially Equal Periodic Payments

The IRS recently issued Notice 2022-6 (the “Notice”), which provides guidance regarding how to determine whether a series of payments from a qualified retirement plan is considered a series of substantially equal periodic payments and is thus exempt from the 10% excise tax under Code Section 72(t). Payments are exempt from that excise tax if they are made in accordance with one of the following methods: (i) the required minimum distribution method, (ii) the fixed amortization method, or (iii) the fixed annuitization method. The Notice provides an updated life expectancy table that can be used to determine distribution periods for the required minimum distribution method and the fixed amortization method. In addition, the Notice modifies the existing minimum interest rate that may be used to apply the fixed amortization method and the fixed annuitization method (which is 120% of the federal mid-term rate) to add a 5% floor. The guidance… Continue Reading

IRS Updates Nonqualified Deferred Compensation Audit Technique Guide

The IRS recently updated its Nonqualified Deferred Compensation Audit Technique Guide (the “Updated Guide”), which replaces the previous version published in June 2015. The Updated Guide provides more detailed guidance on the legal standards applicable to deferred compensation arrangements, including the addition of specific citations to relevant regulations and revenue rulings. Notably, the Updated Guide also includes significantly expanded discussions about Code Section 409A and its application to deferred compensation arrangements. Code Section 409A, and other regulations impacting deferred compensation, are very complicated and can carry substantial penalties and taxes for noncompliance. As Congress and the Biden Administration look for additional sources of funding for their initiatives, heightened IRS audit activity may be on the horizon. The Updated Guide is a good reminder to employers that they should periodically review their nonqualified deferred compensation arrangements, not only for documentary compliance but operational compliance as well. The Updated Guide is available… Continue Reading

Extension of Employment Tax Deadlines

Pursuant to Section 274 of the COVID-related Tax Relief Act of 2020, the IRS recently issued Notice 2021-11 which extends the repayment dates for the payroll tax deferral relief provided under IRS Notice 2020-65 (discussed in our prior blog post here). Under IRS Notice 2020-65, deferred employment taxes had to be withheld and remitted to the IRS in substantially equivalent installments from wages or other compensation paid to employees between January 1, 2021 and April 30, 2021, with interest and penalties on unpaid deferred taxes beginning to accrue on May 1, 2021. Under Notice 2021-11, the timing for withholding and payment of these taxes is extended through December 31, 2021, and the date that interest and penalties begin to accrue on unpaid deferred taxes is delayed until January 1, 2022. Notice 2021-11 is available here.

September 2022
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