IRS Issues More Section 162(M) Guidance

Public companies subject to the $1 million deduction limit of Internal Revenue Code Section 162(m) should continue to monitor the fallout from IRS Revenue Ruling 2008-13 for further developments, and should give themselves plenty of lead time to implement changes to employment agreements and plan documents.

On February 21, 2008, the Internal Revenue Service (IRS) issued Revenue Ruling 2008-13 (the Revenue Ruling) to provide additional guidance on the application of Internal Revenue Code Section 162(m). The Revenue Ruling is available here. The IRS issued the Revenue Ruling in response to the uproar caused when the IRS issued Private Letter Ruling 200804004 (the PLR), which created substantial uncertainty regarding what constitutes "performance-based compensation" under Section 162(m). A previous McDermott On the Subject analyzing the PLR is available here. This On the Subject briefly summarizes what the