IRS Issues Proposed Regulations To Clarify Application Of Section 162(m)

New proposed regulations¹ clarifying perceived ambiguities in the application of the $1 million limit on deductible compensation for covered employees,² including the transition rule applicable to privately held corporations that become publicly held, were recently published by the Internal Revenue Service. Companies should review their incentive compensation arrangements to determine whether these proposed regulations, once finalized, will affect such arrangements, and, if so, how such arrangements may need to be modified in order to comply with Section 162(m).

Equity-Based Grants by Newly Public Companies

Section 162(m) generally limits deductions by publicly held corporations for remuneration paid to covered employees in excess of $1 million per year. However, for privately held corporations that become publicly held, the $1 million deduction limitation does not apply to any remuneration that is paid pursuant to a compensation plan or agreement that was in place