Extension of 409A Compliance: Why?

The IRS announced today that taxpayers will have until December 31, 2008, to comply with the 409A regulations, which were finalized in April of this year. The initial date of compliance was year-end 2007.

The questions I have are these:

• Did the IRS cave to concerns from so many law firms fretting about not having enough time to achieve compliance? Quite possibly. We’ve heard some stories. Let's remember that a very large part of IRC 409A compliance lies outside the realm of valuation. Of the 300+ pages of the code, valuation comprises about three, while the rest is dedicated to comp plan design.
• Alternatively, is the IRS still trying to figure out how to prosecute 409A valuation cases? Not likely; the case law applying to Fair Market Value appraisals is robust.
• Or is the IRS having a hard time staffing up with sufficient qualified analysts? The last time we checked, the Monster board had more than 2000 open recs for valuation analysts.
• Finally, is it possible that the IRS is itself concerned with the collision of 409A and SFAS 123(R) / SFAS 157? Again, quite possibly. Certainly more time is required to hash this one out. The Appraisal Issues Task Force, and others like it, has only begun to debate the far-reaching consequences of these colliding standards. The FASB has created the Valuation Resource Group to wrestle with this issue itself.