Payments Do Not Qualify As Performance Based Compensation Under 162(M) Where Payments Are Permitted Under A Severance Arrangement

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 performancebased 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.

Code Section 162(m) limits a public company's tax deduction for compensation paid to covered employees to $1 million per covered employee per year. This limitation does not apply to "performance-based" compensation programs. A "covered employee" includes a company's principal executive officer (i.e., its CEO) and its other three