Proposed Regulations On 162(m) Deduction Limitation

Recently, the IRS issued proposed regulations concerning the $1 million deduction limitation for public company executive compensation, set forth in section 162(m) of the Internal Revenue Code. The proposed regulations clarify two important issues under the current rules, relating to:

• The requirements for compensation attributable to stock options or stock appreciation rights to qualify for an exemption from the deduction limit as "performance-based compensation"  
• Application of the transition rule for privately held companies that become public

A brief summary of the proposed regulations is included below. If finalized during 2011, these regulations could apply to the 2011 tax year.