IRS Releases Final Regulations on $1 Million Executive Compensation Deduction Limitation

31 December 2020
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Key takeaways:
  • On December 18, 2020, the IRS published final regulations which implement amendments made to Section 162(m) by the 2017 Tax Cuts and Jobs Act. The final regulations largely adopt the proposed regulations published on December 16, 2019 with a few key changes and clarifications.
  • The final Section 162(m) regime meaningfully increases the application of the $1 million deduction limit for executive compensation by providing detailed rules on the treatment of covered employees in corporate transactions, expanding on which publicly held corporations are subject to the law and eliminating the IPO transition exemption.
  • The final regulations provide that compensation paid pursuant to written binding contracts in effect on November 2, 2017, are grandfathered and not subject to Section 162(m) so long as such contracts are not materially modified.