On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act, which contains proposals modifying certain executive compensation provisions of the Internal Revenue Code. The Senate’s approval of the executive compensation provisions follows substantively the same provisions proposed by the Senate Finance Committee’s bill, and the House of Representatives’ version of the Tax Cuts and Jobs Act (known as H.R. 1, released on November 2, 2017 and modified by the House Committee on Ways & Means (the “Ways & Means Committee”)).  Currently, both bills approved by the House and the Senate include proposals to (1) create a new Section 83(i) that will allow the deferral of income from certain qualified equity grants made by private corporations, (2) significantly expand the scope of the $1 million deductibility limitation on executive compensation described in Section 162(m) (including an elimination of the exceptions for performance-based compensation and commissions) and (3) create a new Section 4960 that subjects excess remuneration paid to certain employees of tax-exempt organizations to an additional 20% tax payable by the employer.  The presence of these proposals in both plans makes it more likely that they will appear in a final version of the Tax Cuts and Jobs Act, if approved by Congress.

The chart in the link below provides a comparison of bills adopted by the House and Senate bills: (1) H.R. 1 as reported by the Ways & Means Committee on November 10, 2017 and passed by the House on November 16, 2017 and (2) as approved by the Senate on December 2, 2017, based on the draft reported by the Senate Finance Committee on November 20, 2017, with substantively similar executive compensation provisions as the bill passed by the House.

Comparison Chart of the Executive Compensation Provisions in the Tax Cuts and Jobs Act

This summary does not describe all of the proposals in the Tax Cuts and Jobs Act.   As of the date of posting, the passage of the Tax Cuts and Jobs Act is uncertain.  Ultimate enactment will require the passage of identical bills by both the House and Senate, and the signature of the President. Reconciliation of the two bills as a whole will require negotiation between the two houses. As a result, the precise form that tax reform legislation will take, when ultimately enacted, remains uncertain. Republican leadership has stated that it plans to present legislation for the President’s approval before the end of 2017.  Therefore, taxpayers should consider the effects of the proposals in the bills now. Please feel free to contact any member of the Proskauer Employee Benefits & Executive Compensation Group with any questions about this post.