Practical Advice For Compliance With Recent Amendments To The Internal Revenue Code Section 162(m) Regulations

The recent amendments to the Section 162(m) regulations largely follow the changes set forth in the proposed regulations issued in 2011, clarifying two exceptions from the Section 162(m) tax deductibility limit:

• The treatment of restricted stock units (RSUs) and certain other forms of stock-based compensation under the transition rule applicable to newly public companies; and
• The requirement under the "qualified performance-based compensation" exception to set a per-employee limit applicable to stock options and stock appreciation rights (SARs) under an equity plan intended to comply with such exception.

RSU Reliance Period Clarification

• Generally, compensation paid by newly public companies under plans or agreements in effect prior to the company's initial public offering (IPO) (for which adequate disclosure is provided in the IPO prospectus) must be "paid" during the reliance period to be deemed performance-based compensation that does not count