In The News
Wednesday, November 21, 2012
Workplace Wisdom: Upcomng IRS Deadline to Correct Severance Agreements
While it is always a prudent practice to condition payments in a severance agreement upon the release of legal claims, employers should review their severance agreements to ensure that they are in compliance with Section 409A of the Internal Revenue Code.
Section 409A of the Internal Revenue Code governs taxation of deferred compensation, and the IRS has taken the position that release provisions in, among other things, certain severance, employment, and change in control agreements could violate Section 409A because an employee could manipulate when he or she is subject to taxation on the compensation provided for in the agreement. However, the IRS has provided transitional relief to retroactively correct any non-compliant release provisions. This relief must be taken advantage of by December 31, 2012.