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Fenwick & West was founded in 1972 in the heart of Silicon Valley—before “Silicon Valley” existed—by four visionary lawyers who left a top-tier New York law firm to pursue their shared belief that technology would revolutionize the business world and to pioneer the legal work for those technological innovations. In order to be most effective, they decided they needed to move to a location close to primary research and technology development. These four attorneys opened their first office in downtown Palo Alto, and Fenwick became one of the first technology law firms in the world.  MORE >

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Executive Compensation Alert: IRS Extends Section 409A Amendment Period 1 Year, Announces Voluntary Correction Program Likely

Overview of Latest Developments

On April 10, 2007, the IRS issued final regulations under Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A"). The final regulations take exclusive effect January 1, 2008. At the time the final regulations were published it was announced that by December 31, 2007, all arrangements subject to Section 409A were required to be amended to be in full operational and documentary compliance with the final regulations. However, in Notice 2007-78 (announced September 10, 2007), the IRS announced that the deadline for documentary compliance is generally extended to December 31, 2008.

Nonetheless, as of January 1, 2008, only the final Section 409A regulations will be in effect, and therefore, good faith reliance can be placed only on the final Section 409A regulations and may not be placed on the proposed regulations or prior IRS notices under Section 409A.

In other words, the deadline for the paperwork project has been extended, but commencing on January 1, 2008, taxpayers must comply in operational practice with the substantive requirements of Section 409A as set forth in the final regulations.

Discounted stock options and stock appreciation rights that must be amended to raise the exercise price or provide for a fixed exercise schedule must still be amended by December 31, 2007.

In addition, the IRS announced it is working on a voluntary compliance program, whereby the liability for inadvertent violations of Section 409A's provision may be limited through prompt action.

We will provide further detail on the effects of IRS Notice 2007-78 in the near future.


For more information on this, or related matters, please contact any attorney in the Equity Compensation and Employee Benefits Group:

Scott P. Spector (650.335.7251 – sspector@fenwick.com)
Blake W. Martell (650.335.7606 – bmartell@fenwick.com)
Tahir J. Naim (650.335.7326 – tnaim@fenwick.com)
Elizabeth A. Gartland (415.875.2371 – egartland@fenwick.com)
Liza Wells Morgan (650.335.7230 – lmorgan@fenwick.com)
Mona A. Clee (650.335.7806 – mclee@fenwick.com)


This alert is intended by Fenwick & West LLP to summarize recent developments in the law. It is not intended, and should not be regarded, as legal advice. Readers who have particular questions about these issues should seek advice of counsel.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice in this communication (including attachments) is not intended or written by Fenwick & West LLP to be used, and cannot be used, for the purpose of (i) avoiding penalties under the internal revenue code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

©2007 Fenwick & West LLP. All Rights Reserved.