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457(b). An eligible employer is “a State, political subdivision
of a State, and any agency or instrumentality of a State or
political subdivision of a State”. Sec. 457(e)(1)(A).
Initially we note that while it may be arguable that the
vacation and/or sick leave could be considered a deferred
compensation plan, section 457 would only defer the income to
“the taxable year in which such compensation or other income is
paid”. Sec. 457(a). Petitioner received the payment in 1999,
the year before the Court.
But that is not the only problem with petitioner’s section
457 argument. Section 457(e)(11) provides that “Any bona fide
vacation leave, sick leave, compensatory time, severance pay,
disability pay, or death benefit plan” is not a plan that
provides for the deferral of compensation. Sec.
457(e)(11)(A)(i).6 Although the County of Los Angeles is an
eligible employer under section 457, the compensation petitioner
received for unused sick and vacation leave fits squarely within
the exemption of section 457(e)(11). As a result, petitioner’s
compensation for unused vacation and sick leave is not a deferred
compensation plan, and section 457 cannot apply. Therefore, we
6 Respondent issued Notice 88-8, 1988-1 C.B. 477, and
Notice 88-68, 1988-1 C.B. 556, which Congress later codified in
sec. 457(e)(11) by the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, sec. 6064(a), 102 Stat. 3700.
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