On June 24, the Internal Revenue Service (IRS) issued proposed regulations clarifying the scope of the performance-based compensation exception to the $1 million deduction limit under Internal Revenue Code (Code) Section 162(m). The proposed clarifications relate to the plan limits for stock option and stock appreciation right (SAR) grants and limit existing transition rules that provide a limited exemption from the Section 162(m) limits for private companies that become public. The proposed regulations go well beyond the typical “clarification” by further narrowing the rules under Section 162(m) in a material way with respect to the transition rule for private companies that become public, and raise many questions as to their potential effect on existing equity awards, including whether deductions could be retroactively disallowed. Seeking further insight into the scope of these proposed regulations, we have discussed many of these questions with the responsible government attorneys; what we have learned is described below.