IRS Will Conduct Section 409A Audits Of Fewer Than 50 Taxpayers, Official Says

 Tax code Section 409A audits of selected taxpayers are under way, an Internal Revenue Service official said at a bar association meeting.         

“A compliance initiative project has been created for Section 409A,” said Thomas D. Scholz, IRS senior technician reviewer, Office of Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities.         

The project will focus on three issues:

• initial deferral elections,
• subsequent deferral elections and
• payouts under Section 409A, including the six-month delay for specified employees.      

 “We are going to look at those issues through the standard information document request,” he said. The Service “will try to limit the scope and burden on taxpayers by limiting our inquiry to the top 10 highly compensated individuals.” Scholz spoke unofficially May 9 at a session of the American Bar Association Section of Taxation 2014 May Meeting.        

The audit will also be limited to deferral elections and payouts for years under examination, he said. “The CIP is required to have a completion date, so we're expecting the CIP will not be finished for 12 months,” he said.         

Selection of Taxpayers          

Fewer than 50 taxpayers will be participating in the CIP, he said. Taxpayers were selected from the existing population of employment tax cases previously identified for employment tax audits, Scholz said. They weren't specifically selected solely for this initiative, he said. “One criteria used for selecting participants was the probability that these taxpayers would have nonqualified deferred compensation plans,” he said.         

The Small Business/Self-Employed Division, employment tax section, will handle the audits, Scholz said. Despite the division's name, it has a large business section and most employers in the Section 409A audit program are large, he said.

Excerpted from a story that ran in Pension & Benefits Daily (5/9/2014).