Have a situation where a participant should have been paid in 2008 but was not.

Section VII.D. of Notice 2008-113 appears to contain some inconsistent language. It states in the first paragraph that the amount is includible in income only when paid to the service provider. But then it states in VII.D.3. that the amount needs to be included in income in the year it was scheduled to be paid. Also, Section IX.B. states the correction notice is to be provided to the service provider by 1/31 of the year following the year the error is discovered, and the service provider must attach that notice to his return for the year the error is discovered.

Example: Payment scheduled for 2008 but not paid until 2010. If the employee must file an amended return for 2008 and include the payment as income for 2008, but the employee attaches the notice describing the error to his 2010 return, does that make sense? Shouldn't the notice be attached to the amended 2008 return? Or is the amount in fact included in income in 2010?

Any thoughts?

My take on it is that both the employer and employee have to submit amended tax forms for 2008 in order to have the additional employee taxes limited to 20%. The Section IX attachment does go on the 2010 tax forms.

That means I refile my 2008 1040 today to pay the taxes deemed due back in 2008 but I don't explain it until I file 2010 taxes in 2011. Though not required, is there any reason not to file the Section IX attachment with 2008 amended forms as well? Sure seems like it would eliminate some pretty basic questions.