The IRS issued final regulations on Sec. 162(m) which were originally proposed in December 2019.
Sec. 162(m) was amended in 2017 by the Tax Cuts and Jobs Act and changed the definition of covered employees, broadened which publicly held corporations are subject to the law, and eliminated the exception from the $1 million limit for compensation payable as qualified performance-based compensation and on a commission basis.
The amendments generally apply to tax years beginning after Dec. 31, 2017, but they do not apply to compensation paid under a written binding contract that was in effect on Nov. 2, 2017 and was not modified after that. KPMG has put together a
useful rundown of the finalized regulations.
Although many of the changes are less relevant to the Center’s purview, there were several changes we would highlight:
- Clawbacks. The regs clarify that the clawback provision does not affect the determination of compensation that the company has a written contract to pay, regardless of whether a clawback is actually exercised.
- Grandfathering. If the company extends the exercise period of a grandfathered option, this will not adversely affect grandfather treatment.
- Compensation. Compensation means the aggregate amount allowable as a deduction for the tax year for remuneration for services performed by a covered employee whether or not the services were performed during the tax year.
- Private Companies that Become Public. If a company went public on or before December 20, 2019, it generally may rely on the original transition relief.
