A
year-end
deadline
for
correcting
certain
impermissible
payment
language
in
employment,
severance,
or
similar
agreements
is
fast
approaching.
As
background,
Code
Section
409A
-
which
governs
most
arrangements
providing
for
future
payments
of
taxable
compensation
-
generally
requires
that
deferred
amounts
be
paid
at
fixed
or
identifiable
times
(e.g.,
termination
of
employment
or
a
specified
date)
and
that
the
covered
individual
(e.g.,
employee)
not
have
the
right
to
designate
the
calendar
year
in
which
payment
will
be
made.
These
rules
apply
to
most
severance-pay
and
similar
arrangements
that
provide
for
payments
in
the
event
of
a
specified
loss
of
employment
(e.g.,
a
termination
without
cause).
It
is
common
for
severance-pay
and
similar
arrangements
to
condition
an
employee's
right
to
payment
on
the
employee
providing
a
release
of
claims.
But
this
can
create
an
issue
under
Section
409A,
depending
on
how
the
payment
language
is
written. The
IRS
takes
the
position
that
the
payment
language
must
not
provide
any
opportunity
for
the
employee
to
control
or
manipulate
the
calendar
year
in
which
payment
will
be
made.
As
an
example,
assume
an
agreement
provides
for
a
right
to
payment
at
any
time within
90
days
after
termination
of
employment,
once
the
employee
has
delivered
a
release
of
claims.
If
the
employee
terminates
employment
on
November
1,
the
employee
can
effectively
choose
which
calendar
year
in
which
to
receive
payment
(the
year
of
termination
or
the
next
year)
by
deciding
when
to
deliver
the
release.
In
comparison,
if
the
agreement
says
payment
will
be
made on
the
90th
day
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