Back to School Special: Teachers Can Take Annualized Salary and Defer Income Into 2008 Without Violating § 409A

With schools throughout the country set to begin, the IRS announced today (IR-2007-142) that teachers who elect to be paid on a 12-month basis (August 2007 - July 2008) rather than on a 9-month basis (August 2007 - May 2008) will not be required to include on their 2007 tax returns the portion of their income deferred into 2008.  Although § 409A was generally effective on January 1, 2005, the § 409A regulations issued in April 2007 impose certain requirements on teachers (and other taxpayers) who elect to spread their compensation over 12 months and these rules do not take effect until January 1, 2008. For more details, see this FAQ.

Update:  See Joe Kristan, Teachers Escape Deferred Comp Trap Aimed at Enron Execs