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Thursday, March 6, 2014

As we have noted previously, March 15 is tax “Code Section 409A Day.”  For employers with calendar fiscal years, that is generally the last day an amount can be paid and still qualify as a short-term deferral that is exempt from 409A’s stringent timing and form of payment requirements.  But what does one do when March 15 falls on a weekend, as it does this year?  You likely aren’t cutting payroll checks on a Saturday.  Can you wait until Monday to pay?

The answer is no.  The rules are clear that the payment generally has to be made by the 15th day of the 3rd month (hence, March 15) of the year following the year in which either the right to the compensation arises or the compensation is no longer subject to a substantial risk of forfeiture (and note that for this purpose, the 409A definition is different than the Section 83 definition).  (The deadline can be different if an employer has a non-calendar year fiscal year, but the concept is essentially the same.)

There are a few exceptions.  First, if making the payment by the deadline is administratively impracticable and such impracticability was not reasonably foreseeable when the right to the compensation arose, then payment can be made after the deadline, as long as payment is made as soon as practicable.  Of course, for 2014 it is difficult to argue that the impracticability wasn’t foreseeable simply because you didn’t happen to look into next March in your Outlook, iCal, or Gmail calendar.

A company can also pay late if the payment would jeopardize the company as a going concern and the payment is made as soon as practicable after the payment would no longer jeopardize the company.  As you can probably tell, that is a pretty high standard.

Finally, if you’re dealing with a public company, and the payment would not be deductible under 162(m), then the public company can pay as soon as the payment would be deductible.  Here, however, you have to establish that a reasonable person would not have anticipated the application of 162(m) to the payment to be able to take advantage of the delay.

Regrettably, there is no exception permitting a delay in payment merely because the 15th of the month happens to fall on a Saturday, Sunday, or holiday.

So the bottom line is that you should make sure that any payments you want to qualify as short-term deferrals get paid by Friday the 14th.  Unless you qualify for one of the exceptions, waiting until Monday is not an option.

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