2009 Tax Informational Advisory Notice to AFTRA Members

Posted November 18, 2009
12:00 PM PST

As we approach the end of the tax year, AFTRA members should be aware of a federal tax provision that may significantly affect certain compensation arrangements commonly found in personal services contracts or agreements covering professional performers.

In 2004, Congress enacted Section 409A of the Internal Revenue Code. While this provision was intended to prevent corporate executive abuse of their deferred compensation agreements, for AFTRA members, there may be certain unintended consequences as a result of the broad definition of “deferred compensation” contained in the statute.

Personal services contracts providing for contingent compensation and profit participation rights, such as royalties, residuals, bonuses, and advances, and even severance pay, may inadvertently be covered by Section 409A. Moreover, Section 409A may penalize an acceleration of deferred compensation. Penalties and interest for compensation arrangements that are not in compliance with Section 409A may be substantial.

Although Section 409A was passed in 2004, the final IRS regulations took effect this year. The IRS has issued a notice permitting certain corrections until Dec. 31, 2009, to contracts containing deferred compensation arrangements to make sure they comply with Section 409A requirements. 

AFTRA is working towards a legislative solution to this problem. In the meantime, AFTRA strongly urges its members to consult with their tax professionals to determine whether Section 409A applies to their individual situation.

 

AFTRA Partners