Section 409A Violation Clause Samples
The Section 409A Violation clause addresses the consequences and procedures if a compensation arrangement fails to comply with Section 409A of the Internal Revenue Code, which governs the taxation of nonqualified deferred compensation. Typically, this clause outlines the steps the parties must take to correct the violation, such as amending the agreement or making necessary tax withholdings, and may specify who bears responsibility for any resulting penalties or taxes. Its core function is to allocate risk and clarify the parties’ obligations in the event of a compliance failure, thereby minimizing uncertainty and potential financial exposure.
Section 409A Violation. The term Section 409A Violation means a violation of Section 409A of the Code that occurs in connection with any payment or benefit (or any acceleration of any payment or benefit) in connection with this Agreement or the fact that a provision of any benefit plan or program of the Company or the Employment Agreement fails to comply with Code Section 409A, and the Executive incurs additional tax under Section 409A of the Code as a result of such violation.