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IRS and Treasury Issue Proposed Regulations Under Code Section 162(m)

The IRS and Treasury recently issued proposed regulations under Internal Revenue Code Section 162(m) to reflect changes enacted by the Tax Cuts and Jobs Act (?Ç£TCJA?Ç¥) to the tax deductibility of compensation paid by publicly held corporations to certain executive officers. Code Section 162(m) disallows the deduction by any publicly held corporation for compensation paid in any taxable year to a covered employee that exceeds $1 million. The proposed regulations implement the changes from the TCJA by (i) updating the definitions of covered employee, publicly held corporation, and applicable employee compensation; (ii) implementing the elimination of the performance-based compensation exception; and (iii) clarifying the application of the ?Ç£grandfather?Ç¥ rule for outstanding compensatory arrangements that were in effect on November 2, 2017 and not modified on or after that date. The proposed regulations also provide guidance on (a) the elimination of the transition period following a corporation?ÇÖs IPO, (b) the impact… Continue Reading

IRS Provides New Guidance Under Code Section 162(m)

In December 2017, under the Tax Cuts and Jobs Act, Congress broadened the $1 million deduction limitation under Code Section 162(m) for a public company?ÇÖs top executives by, among other things, broadening the scope of ?Ç£covered employees?Ç¥ and eliminating the performance-based compensation exception. The more restrictive Code Section 162(m) generally applies for tax years after 2017, but certain arrangements in existence on November 2, 2017, may be grandfathered. On August 21, 2018, the IRS issued new guidance on Code Section 162(m) under IRS Notice 2018-68 (the ?Ç£Notice?Ç¥). Notably, the Notice provides guidance with respect to the grandfathering relief (including the impact of negative discretion and what constitutes a material modification), and provides guidance on the expanded scope of who is a ?Ç£covered employee?Ç¥ (and will remain a covered employee). The Notice leaves open for comment several issues, including, the rule which allows certain newly public companies to limit the application… Continue Reading

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