§457A Nonqualified deferred compensation from certain tax indifferent parties

Summary

Treats deferred pay from certain foreign companies and partnerships as taxable when the person who will get the pay no longer faces a real chance of losing it. The rule applies to foreign corporations unless almost all their income is tied to U.S. business or is subject to a comprehensive foreign income tax, and to partnerships unless almost all their income goes to people other than foreign persons who aren’t taxed abroad or tax‑exempt organizations. If the exact amount is not known when it should be taxed, it is taxed when the amount is finally known, and the tax for that year is increased by interest plus a 20 percent add‑on. The interest is the underpayment rate under section 6621 plus 1 percentage point, figured on what would have been unpaid taxes if the pay had been taxable when first deferred (or when the risk of forfeiture ended). “Substantial risk of forfeiture” means the right to pay depends on future work. Special rules treat pay tied only to gain on an investment asset as at risk until that asset is sold. “Comprehensive foreign income tax” means a tax where the person gets treaty benefits or can show the country has such a tax. The term “nonqualified deferred compensation plan” follows section 409A(d) and also covers rights tied to equity appreciation; pay received no later than 12 months after the service recipient’s taxable year in which risk ends is not treated as deferred. Finally, amounts that would have been deductible by a foreign corporation under section 882 if paid in cash when risk ended are excluded, and the Treasury can issue rules, including ignoring forfeiture risk when needed.