US Corporate Law News: IRS issues guidance on 'performance-based' exception of Internal Revenue Code Section 162(M)


On August 21, 2018, the IRS issued Notice 2018-68 to provide guidance on the application of section 162(m) of the Internal Revenue Code. Section 162(m) limits the allowable deduction for a taxable year for any “applicable employee remuneration” paid by a publicly held corporation with respect to a covered employee. “Applicable employee remuneration” includes payments on a commission basis or qualified performance-based compensation. Specifically, section 162(m) disallows the deduction for any payment to the extent that it exceeds $1,000,000. The Notice explains how awards made on or prior to November 2, 2017 can continue to qualify for the “performance-based” exception, by giving guidance on the definition of covered employee and remuneration provided pursuant to a written binding contract. For more information see https://www.irs.gov/pub/irs-drop/n-18-68.pdf.

This article was written with contributions from Tim Piscatelli.