IRS Stands By Reversal on Performance-Based Compensation Under Section 162(m), Provides Transition Relief

The IRS has issued a revenue ruling that confirms a new position taken in a recent private letter ruling with respect to qualified performance-based compensation under Section 162(m). The new revenue ruling confirms that if payments can be made under a plan without regard to performance upon an affected executive's termination of employment for reasons other than death, disability or change of control, then no payments under the plan will qualify as performance-based compensation under Section 162(m). The new position potentially affects not only Section 162(m) cash bonus plans, but also stock-based incentives, such as restricted stock, restricted stock units, and performance shares, whose vesting or payment may be contingent on performance.