Payments Do Not Qualify as Performance Based Compensation Under 162(m) Where Payments are Permitted Under a Severance Arrangement

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The Internal Revenue Service published a private letter ruling on January 28, 2008 (PLR 200804004) holding that amounts paid to a recipient under an incentive compensation plan intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, (the ?Code?) will not qualify as performance-based compensation where the recipient?s employment agreement provides for payment of the performance compensation upon a termination of employment without cause or for good reason, whether or not the performance metrics are satisfied.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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