The IRS recently published “Certain Employee Remuneration in Excess of $1,000,000 Under Internal Revenue Code Section 162(m).”
If any of your clients are officers in a corporation, last week’s IRS announcement may be of interest. The agency released proposed regulations for deducting corporate officer compensation: “Certain Employee Remuneration in Excess of $1,000,000 Under Internal Revenue Code Section 162(m).”
According to the IRS press release, the proposed regulations—which update information in Notice 2018-68—“reflect changes from the Tax Cuts and Jobs Act (TCJA) on the tax deductibility of officers’ compensation by publicly held corporations.”
In addition to the TCJA-related changes, the IRS outlines what it calls a “grandfather rule” to provide guidance for corporate officers who signed a contract before the implementation date of the TCJA rules: December 31, 2017.
What do the new proposed regulations for deducting corporate officer compensation say?
First—as the title of the proposed regulations suggests—the TCJA limited the amount of publicly held corporate compensation that officers could deduct: “Section 162(m) disallows the deduction by any publicly held corporation for compensation paid in any taxable year to a covered employee that exceeds $1 million.” Further, “the proposed regulations update the definitions of covered employee, publicly held corporation, and applicable employee compensation.”
Second, the grandfather rule is meant to provide a clearly defined transition period for corporate officers whose contracts were signed just before TCJA changes took effect: “The TCJA changes do not apply to compensation that is provided to a covered employee under a written binding contract that was in effect on Nov. 2, 2017 and was not modified on or after that date.”
Where can I read more about the new proposed regulations for deducting corporate officer compensation?
Perhaps the best place to start learning about the proposed regulations is reading them for yourself. The IRS conveniently provided links to both the text of “Certain Employee Remuneration in Excess of $1,000,000 Under Internal Revenue Code Section 162(m)”—which still has a public comment period that runs until Feb. 17, 2020—and a webpage aggregating all TCJA-related changes to the tax code.