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FAQs on the New 162(m) Guidance

September 13, 2018

Authors

Lisa Van Fleet and Adam Braun

FAQs on the New 162(m) Guidance

September 13, 2018

by: Lisa Van Fleet and Adam Braun

We previously blogged about the guidance released by the IRS in Notice 2018-68 (the “Notice”), which addressed some of the changes made to Section 162(m) of the Internal Revenue Code (“Section 162(m)”) in the 2017 tax reform law (the “Act”).  In that post, we focused on the general changes in the definition of covered employee and guidance as to what constitutes a written binding contract eligible for grandfather relief.   In this post, we will address 5 of the most common questions we’ve heard companies ask about the guidance and describe potential next steps.

Q 1:   If a performance based compensation arrangement permits negative discretion to zero, are all payments made pursuant to that arrangement subject to 162(m)’s $1 million deduction limit? 

A:  Most likely, yes.  The Notice clarifies that a compensatory arrangement is not a written binding contract to the extent that any

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Changes to Executive Compensation: The Tax Cuts and Jobs Act’s Impact on Section 162(m)

February 6, 2018

Authors

Steve Evans and Jennifer Stokes

Changes to Executive Compensation: The Tax Cuts and Jobs Act’s Impact on Section 162(m)

February 6, 2018

by: Steve Evans and Jennifer Stokes

On December 22, 2017, President Trump signed the bill popularly referred to as the “Tax Cuts and Jobs Act” (the “Act”) into law.  The Act contains significant changes to Section 162(m) of the Internal Revenue Code that are effective for taxable years beginning after December 31, 2017. In this article, we provide a summary of the changes to Section 162(m) and suggest planning considerations for publicly held corporations.

Summary of Changes to Section 162(m)

Among other changes to Section 162(m), the Act eliminated the performance-based compensation exception to the $1 million deduction limitation under Section 162(m).  The Act amended the scope of the covered employees, corporations, and compensation for purposes of the $1 million limitation on the deduction for compensation paid to certain employees under Section 162(m). The changes to Section 162(m) include the following:

  • Eliminating the performance-based compensation and commission exceptions from compensation subject
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