IRS Issues Revenue Ruling On Effect Of Severance Provisions On Section 162(M) Performance-Based Compensation Arrangements

Originally published February 28, 2008

As summarized in our Client Alert of February 8, 2008, the IRS issued a private letter ruling (PLR) that reversed its prior position relating to the effect of severance provisions on performance-based compensation arrangements under section 162(m) of the Internal Revenue Code (relating to the $1 million limit) (see " IRS Changes Position on Effect of Severance Provisions on Section 162(m) Performance-Based Compensation Arrangements"). Of critical concern to many employers was whether the IRS’s new position would be applied to amounts already earned and/or paid under existing compensation arrangements, resulting in the possible disallowance of past deductions and the need, in some cases, to revise past financial statements and/or disclosures to shareholders.