IRS Issues Regulations on Performance-Based Compensation Exception

摘要

The Internal Revenue Service (IRS) recently issued final regulations to clarify the definition of deductible performance-based compensation paid to highly compensated officers. These regulations state that equity-based awards must specify a limit on the maximum number of shares that can be granted to an individual employee to qualify for the performance-based exception for deductibility of that employee's compensation in excess of the $1 million limit. The final regulations also address the transition rules for private corporations that become publicly held. These rules are particularly important when restricted stock units or phantom stock are part of the compensation plan. Corporations should review their employment agreements and performance plans to ensure that the deduction for these types of performance-based compensation is not lost.