Question

Research the U.S. Tax Code to determine the manner in which deferred compensation is taxed. Conclude whether the treatment is reasonable. Provide support for your conclusions.
Provide one example of the tax treatment of deferred compensation. Discuss whether the taxation of this income harms taxpayers in general.
Propose an alternative to the taxation of deferred compensation that would be fair to all taxpayers and support the financial needs of the federal government. Indicate substantive ways in which your recommendation would achieve fairness to taxpayers and the United States Treasury.
Research recent IRS audit activities related to deferred compensation to determine the most frequent types of deferred compensation that would most likely trigger an IRS audit. Propose a strategy that you would use to defend a client facing an IRS challenge on deferred compensation.
Use at least three (3) quality references. Note: Wikipedia and other Websites do not qualify as academic resources.

Answer 1

A deferred income tax is a liability recorded on a balance sheet resulting from a difference in income recognition between tax laws and the company's accounting methods. For this reason, the company's payable income tax may not equate to the total tax expense reported.

The total tax expense for a specific fiscal year may be different than the tax liability owed to the IRS as the company is postponing payment based on accounting rule differences.

“IRS Updates its Audit Technique Guide for Nonqualified Deferred Compensation Plans.” Finally, the IRS might provide additional guidance on its audit approach to 409A issues. However, despite the first update since 2005, the new Audit Technique Guide (ATG) leaves the impression that 409A is only a minor concern for the IRS auditors of nonqualified deferred compensation plans. However, maybe that is the message IRS is trying to send to us, to wit, in your obsession with 409A, don’t ignore all of the other rules that apply to nonqualified deferred compensation plans.