Close
Close

IRS rules that director who served as interim CFO was not an officer for Section 162(m) purposes

RFP
Section 162(m) limits a public corporation’s deduction for a taxable year for compensation paid to certain executives to $1 million for each executive. However, the limitation does not apply to performance-based compensation. In order for compensation to be treated as performance-based compensation, the compensation must meet several requirements, including a requirement that the performance goals be established by a compensation committee that consists solely of outside directors. A director is an outside director if he or she is not a current employee, is not a former employee who is receiving compensation for prior services, has never been an officer, and does not receive any compensation from the corporation other than as a director.

In PLR 201733004, the IRS addressed a situation where a corporation’s CFO resigned unexpectedly. The corporation appointed one of its directors to serve as interim CFO for a stated, limited period of time while it searched for a permanent CFO. The director was not paid for serving as interim CFO, and his authority was limited to primarily completing financial disclosure statements. The prior CFO had been an executive vice president, but the director was not an executive vice president. According to the ruling, this constrained any policy-making function on the part of the director.

The ruling concludes that the director qualifies as an outside director despite serving as interim CFO. The ruling discusses several provisions in the regulations that support the conclusion, including the following:

  • The determination of whether an individual is or was an officer is based on all of the facts and circumstances, including the source of the individual’s authority, the term for which the individual is elected or appointed, and the nature and extent of the individual’s duties.
  • The term “officer” means an administrative executive who is or was in regular and continued service.
  • The regulations state that the term “officer” implies continuity of service, and excludes those employed for a special and single transaction.
  • An individual who has, or had, the title of an officer, but not the authority of an officer, is not considered an officer.

Contact

Eddie Adkins
Partner, Washington National Tax Office
T +1 202 521 1565

Jeffrey Martin
Partner, Washington National Tax Office
T +1 202 521 1526

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.