The Internal Revenue Service has published Notice 2018-68 (the “Notice”), which provides long awaited, but limited guidance on the recent amendments to Section 162(m) of the Internal Revenue Code (“Section 162(m)”) by the Tax Cuts and Jobs Act of 2017 (the “TCJA”). Specifically, the
Under both the House and Senate versions of the Tax Cuts and Jobs Act, Internal Revenue Code Section 162(m) would be modified to expand the scope of companies and executive officers subject to the limitation on deductibility of compensation over $1 million, as well as to eliminate the exception to non-deductibility under Section 162(m) for qualified performance-based compensation. The changes would be effective for tax years after 2017, but under the Senate bill, binding contracts in effect on November 2, 2017 would be grandfathered if not materially modified on or after that date). Each version of the Tax Cuts and Jobs Act would also generally lower the corporate tax rate to 20%. The House bill reduces the corporate tax rate beginning in 2018 and the Senate reduces it beginning in 2019.
Section 162(m) of the Internal Revenue Code generally limits the deductibility of compensation paid in excess of $1 million to the chief executive officer and the three other highest compensated officers (other than the chief financial officer) of a public corporation with securities registered under Section 12 of the Exchange…
IRC Section 162(m) provides that a public company may not deduct annual compensation paid to a “covered employee” in excess of $1,000,000 per year, other than certain “qualified performance-based compensation.” For these purposes, “covered employees” generally include the company’s CEO and its three most highly compensated executive officers (other than the CEO and CFO) identified in the company’s “Summary Compensation Table.”