When Does a Nonqualified Entity Sponsor a Deferred Compensation Plan?
IRS Notice 2009-8 provides that the “sponsor” of the deferred compensation plan is the entity that would otherwise be entitled to a deduction for the deferred compensation (if paid immediately) under U.S. federal income tax principles. To put this in perspective, in many multinational businesses, the senior managers of U.S. operations participate in plans of the corporate parent, which may be a non-U.S. company. If the compensation expense is charged back under U.S. tax principles to the U.S. company for which the manager works, the arrangement is not subject to Section 457A. For example, assume the president of a U.S. subsidiary of a foreign parent participates in the parent’s incentive plans. If the expense is charged back by the foreign parent to the U.S. subsidiary, and is deductible by the U.S. subsidiary, the arrangement is not subject to Section 457A even if the parent is resident in one of the jurisdictions in which corporations may be considered nonqualified entities. However,
