IRS rules affect limits on Section 162(m) compensation deduction

Tax Hot Topics newsletter IRS guidance (Notice 2018-68) on new rules tightening the restrictions on public company deductions for executive compensation under Section 162(m) narrowly interprets the transition rule for written binding contracts in effect on Nov. 2, 2017. The guidance was issued Aug. 21 as a notice that the IRS intends to incorporate in future proposed regulations. The notice also provides guidance on the new definition of a covered employee, but does not address changes to the definition of a public corporation, which will be covered in the proposed regulations.

This is critical information for public corporations to assess whether their plans qualify for the grandfathering rules. Companies should reevaluate their deferred tax assets for compensation items to determine whether adjustments should be made. For calendar year companies this should be done for the third quarter statement.

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

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