IRS Says CFOs Are Not Covered Employees Under Section 162(m)

Article by Susan P. Serota, John J. Battaglia, Michael G. DeRose, Peter J. Hunt, Mark C. Jones, Lynne A. Lacoursiere, Howard L. Clemons, Keith R. Kost, Jan H. Webster, Lori Partrick, Daniel N. Riesenberg, Kenneth E. Bonus, Christine L. Richardson and Jennifer Dack Brooks

Recent Internal Revenue Service Notice 2007-49 addresses the inconsistent definitions of a "named executive officer" in the Securities and Exchange Commission disclosure rules under the Securities Exchange Act of 1934 and "covered employee" in Section 162(m) of the Internal Revenue Code.

The Notice clarifies who is a "covered employee" for purposes of Code section 162(m)’s $1 million deduction limitation by providing that a company’s principal financial officer will not be considered a covered employee. Pursuant to the Notice, the IRS also lowered the number of individuals other than a company’s principal executive officer who are covered employees from four to three.