IRS Releases Proposed Regulations that Clarify the Tax Reform’s Impact on Section 162(m)

When the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted on December 22, 2017, the changes to Internal Revenue Code Section 162(m) left a lot of companies with more questions than answers. In fall 2018, the IRS released its first set of clarifying guidance in Notice 2018-68 (see our article here for details), yet there were still gray areas that needed more explanation.

On December 18, 2019, the IRS released proposed regulations under Section 162(m), this time covering:

  • What entities are considered a publicly held corporation;
  • More information on who are covered employees and covered by 162(m);
  • What compensation is subject to the $1 million annual deduction limit;
  • Treatment of privately held corporations that become publicly held;
  • Grandfathering of compensation covered by a November 2, 2017 binding contract; and
  • Coordination of Section 162(m) with Section 409A.

Though the proposed regulations are lengthy (129 pages including the preamble), they mostly confirm the initial guidance provided just over a year ago. In this article, we provide highlights of the proposed regulations with a focus on those areas in which we expect companies to have questions — mainly, grandfathering and 409A.

Click here to read the full article.

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