The notice is scheduled to be published on June 18, 2007, in Internal Revenue Bulletin 2007-25.
On June 4, 2007, the Internal Revenue Service issued Notice 2007-49 addressing identification of "covered employees" subject to the limit on deductible compensation imposed by section 162(m) of the Internal Revenue Code, and eliminating the uncertainty that had existed since the Securities and Exchange Commission amended its executive compensation disclosure rules on September 6, 2006.
Effective immediately, "covered employees," for purposes of section 162(m), will include only the employees, who as of the close of the employer's taxable year are either: (i) the principal executive officer, or an individual acting in that capacity, or (ii) employees whose total compensation for that year is required to be reported to shareholders pursuant to the Securities Exchange Act because that employee was among the three highest compensated officers for the taxable year, other than the principal executive officer or the principal financial officer. According to the notice, the principal financial officer, or an individual acting in that capacity, will not be a covered employee unless the principal financial officer also: (i) is acting as the principal executive officer as of the close of the employer's taxable year, or (ii) holds another officer position and is among the highest three compensated officers.
Until Congress amends section 162(m), or the IRS issues further guidance, companies will only have four covered employees, and their covered employees will no longer mirror their named executive officers for purposes of SEC disclosure. A legislative change is still possible. Earlier this year, an amendment significantly expanding the reach of section 162(m) was included in a minimum wage bill. This provision was not included in the final legislation, but we expect it to be introduced again in the future because it was estimated to raise $105 million in tax revenue over 10 years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
