California Tax: Franchise Tax Board Conforms to IRC Section 409A

On January 19, 2010, the Internal Revenue Service (IRS) released Notice 2010-6. It allows taxpayers to correct certain operational failures of nonqualified deferred compensation plans in order to comply with IRC Section 409A. Because the California Revenue and Taxation Code (R&TC) Sections 17501 and 24601 conformed to IRC Section 409A, we follow IRS Notice 2010-6.

Service recipients or service providers, e.g., employees or employers, that rely on IRS Notice 2010-6 for federal income tax relief must follow the Notice's information and reporting requirements. To follow the information and reporting requirements, service recipients and providers must attach statements to their respective federal income tax returns.

For California income tax purposes, however, service recipients or providers that rely upon the Notice for relief are not required to attach additional statements to their California income tax returns. We require service recipients and providers to retain a copy of the information in their records, and may request these documents at a later date.

Although we follow IRS Notice 2010-6, this does not relieve the service recipients of employment taxes or penalties, if applicable.