The Internal Revenue Service (“IRS”) recently proposed Regulation 122180-18 (the “Proposed Regulations”) to implement the amendments found in the Tax Cuts and Jobs Act of 2017 (the “Act”)1 to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Proposed Regulations supersede the IRS guidance previously released in IRS Notice 2018-682 and remain open for comment until February 18, 2020; however, many aspects of the Proposed Regulations take immediate effect. This alert summarizes key aspects the Proposed Regulations on executive compensation arrangements.
Prior to the Act, Code Section 162(m) capped the tax deductible compensation paid to a public company’s CEO and three other most highly compensated executive officers (excluding the CFO) (“Covered Employees”) at $1,000,000, with an exemption for qualifying performance-based compensation. Covered Employees were determined based upon employment on the last day of a company’s taxable year.
The Act performed a major overhaul to Code Section 162(m). Its amendments included:
The Proposed Regulations largely confirm the preliminary guidance issued by the IRS in Notice 2018-68 and also address several new points:
1For a discussion of how the Act amended Code Section 162(m), see our prior alerts at: https://www.womblebonddickinson.com/us/insights/alerts/what-tax-cuts-and-jobs-act-means-executive-compensation and https://www.womblebonddickinson.com/us/insights/alerts/time-revisit-executive-compensation-arrangements-light-recent-tax-reform.
2Our prior alert addressing Notice 2018-68 is available at https://www.womblebonddickinson.com/us/insights/alerts/time-review-executive-compensation-arrangements-light-irs-guidance-section-162m.