Executive Compensation IRC Sec 162(m) Regulations missing Jigsaw puzzle

Executive Compensation IRC Sec 162(m) Regulations Finalized

Fulcrum Partners Deferred Compensation News

Just before the holidays, the Internal Revenue Service and Treasury Department published finalized executive compensation IRC Sec 162(m) regulations. As executive compensation attorney, Mike Melbinger reminded us, “nothing says Merry Christmas and Happy Holidays like regulations from the IRS.” 

Mike has shared insights on the finalized regulations twice since they were published. His comments are summarized below.

Final Regulations Under Revised Section 162(m) published 12/18/2020

“…Readers doubtlessly recall the dark day when the Tax Cuts and Jobs Act of 2017 (TCJA) amended Code Section 162(m) to eliminate the performance-based compensation exception to the $1 million deductibility limit. Just over one year ago, the IRS and the Treasury Department released proposed regulations on the changes to Section 162(m) made by the TCJA. Today they released final regulations.

“Based on my quick review, I have spotted only one item of good news so far. The final regulations provide that a corporation that was not a publicly held corporation and then becomes a publicly held corporation on or before December 20, 2019, may rely on the transition relief provided in §1.162-27(f)(1) until the earliest of the events provided in §1.162-27(f)(2). Furthermore, a subsidiary corporation that is a member of an affiliated group (as defined in §1.162-27(c)(1)(ii)) may rely on the transition relief provided in §1.162-27(f)(4) if it becomes a separate publicly held corporation (whether in a spin-off transaction or otherwise) on or before December 20, 2019.”

Follow Up on the Final Regulations Under Revised Section 162(m) published 12/22/20

“…To keep it brief, I will only highlight the portions of the final regulations that are different from or clearer than the proposed regulations.

“The final regulations clarify that the company’s right to recover [clawback] compensation does not affect the determination of the amount of compensation the company has a written binding contract to pay under applicable law as of November 2, 2017, regardless of whether the company actually exercises its discretion to recover any compensation in the event the condition arises in the future.

“The final regulations provide that, if a company extends the exercise period of a grandfathered option or SAR (stock appreciation rights), the extension will not adversely affect the grandfather treatment as long as the extension complies with Treas. §1.409A-1(b)(5)(v)(C)(1).

The final regulations include several “Special Applicability Dates,” which delay the application of certain provisions of revised Section 162(m). For example, the special applicability dates provide that the definition of covered employee applies to taxable years ending on or after September 10, 2018 (the publication date of Notice 2018-68). Additionally, as I noted last week, the special applicability dates provide that a corporation that was not a publicly held corporation and then becomes a publicly held corporation on or before December 20, 2019, may rely on the original transition relief provided in §1.162-27(f)(1) until the earliest of the events provided in §1.162-27(f)(2). Furthermore, a subsidiary corporation that is a member of an affiliated group (as defined in §1.162-27(c)(1)(ii)) may rely on the transition relief provided in §1.162-27(f)(4) if it becomes a separate publicly held corporation (whether in a spin-off transaction or otherwise) on or before December 20, 2019.”

#ExecutiveComp #TaxCode #IRS #sec162(m)

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