IRS Guidance on Navigating the $1 Million Executive Compensation Deduction Limitation under Section 162(m)

5 September 2018
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key takeaways:
  • The IRS has published a Notice providing guidance on the changes to Section 162(m) enacted as part of the 2017 Tax Cuts and Jobs Act. The Notice provides helpful clarification on defining the scope of covered executives and the application of the grandfathering rules.
  • Surprisingly, the Notice uncouples, to a significant extent, the executives covered by Section 162(m) and the executives for whom compensation disclosure is required under SEC disclosure rules. For this reason, public companies will need to separately track its executives covered by Section 162(m) and its executives for whom SEC compensation disclosure is required.
  • The Notice also makes clear that it will be difficult for companies subject to Section 162(m) to establish and maintain grandfathered status for existing arrangements. Covered companies should review existing arrangements to confirm that they are in fact grandfathered, and should tread carefully when making changes so as not to inadvertently jeopardize their grandfathered status.