The 162(m) Grandfather Reveal Party: IRS Releases Limited Guidance on Internal Revenue Code Section 162(m)
August 29, 2018
Authored by: Meredith Jacobowitz and Lisa Van Fleet
It took roughly nine months, but you may now be in a position to identify and reveal the status of contracts as 162(m) grandfathered – or not. Last week, in IRS Notice 2018-68, the IRS provided long-awaited, albeit limited, guidance concerning the changes made to Internal Revenue Code Section 162(m) by the Tax Cuts and Jobs Act. Specifically, the notice includes additional information about the new definition of “covered employee” (i.e., an employee with respect to whom the compensation deduction is capped at $1 million) and…drum-roll please…. the meaning of “written binding contract” for purposes of determining whether a contract is grandfathered under Section 162(m).
Notice 2018-68 anticipates that future regulations will incorporate its contents, but that any such regulations will only apply to taxable years ending on or after September 10, 2018. The notice further specifies that any future guidance, including regulations, addressing the issues covered by Notice 2018-68 in a manner that would broaden the definition of “covered employee” will apply prospectively only.
Read on for a brief summary of the guidance provided by the notice – and stay tuned for our next post which will explore the most common questions companies are asking about the guidance, including questions about equity and deferred compensation arrangements, and steps companies can take in response to it.
End of Year Requirement: Before we address the grandfather guidance, we want to explore the expanded the definition of covered employee as this may impact the employees with respect