Final Regulations On Section 162(m) Deduction Limit Exceptions

New final regulations¹ (the "Final Regulations") have been issued clarifying and altering the "qualified performance-based compensation" exception and the transitional "reliance period" exception for newly public companies to the $1 million limit on deductible compensation for covered employees of public companies. 

Overview

Section 162(m) generally limits deductions by publicly held corporations for remuneration paid to "covered employees" in excess of $1 million per year.²

1. Public corporations nevertheless can deduct the whole amount of compensation paid to "covered employees" if the compensation is "qualified performance-based compensation."  The Final Regulations provide that equity awards must be issued under a shareholder-approved plan that contains a per-employee maximum share limitation in order to qualify for the performance-based compensation exception under section 162(m).³