Question

Research recent IRS audit activities related to deferred compensation to determine the most frequent types of deferred compensation that would most likely trigger an IRS audit. Propose a strategy that you would use to defend a client facing an IRS challenge on deferred compensation.

Answer 1

Answer :

Most Frequent types of Deferred Compensation likely to trigger an IRS audit ;

1. Non Qualified Defferred Compensation (NQDC) plans in which are distributed earlier than Separation from service, death,, disability, termination before fixed tenure, unforseeable emergency and change in ownership.

2. Management Company Compensation - if they elect to defer the receipt of performance or management fees.

3. deferred compensation of employee compensation.

To defend a cllient facing an IRS challenge on deferred compensation, we need to ensure that the client is in compliance of section 409A with regard to both fee arrangements between asset managers and the funds they manage and deferred compensation arrangements between asset managers and their employees.