One component of the Jobs Creation Act of 2004, section 409A, states that unless certain requirements are met, deferred compensation is includible in current gross income. These deferred amounts are subject to taxes, fees and penalties at the federal – and in some cases – state and local level.

Any individual or entity receiving nonqualified deferred payments is subject to IRC 409A. This means that employees and directors, can be affected. As with anything submitted to the IRS, an independent valuation of stock is required in this instance. In fact, the American Jobs Creation Act includes the requirement that a professional 409A valuation to determine fair market value must be completed to ensure that the government is receiving its share of taxable income.

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