Section 162(m)

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Mar 5

Linda Chan

Know More: Benefits Benefits, Taxes

The following is not meant to be legal advice.

The Internal Revenue Service released Revenue Ruling 2008-13 on February 21, 2008. The release confirmed that compensation will not qualify as performance-based compensation under Internal Revenue Code Section 162(m) (Section 162(m)) if the agreement under which the covered employee is paid provides that the compensation will be paid regardless of whether the performance goal was attained upon termination for good reason, involuntary termination, or retirement.

Section 162(m) limits the annual tax deduction to $1,000,000 for compensation paid to a public company's chief executive officer and other officers. This limit does not apply to performance-based compensation that qualifies under Section 162(m).

The release confirmed a private letter, which concluded that an arrangement failed to qualify as performance-based compensation under Section 162(m) because it permitted paying awards at target levels in a termination without cause, for good reason, or retirement, even if a termination triggering severance did not occur and the awards were paid upon attaining the performance goals.

Companies might review arrangements intended to qualify as performance-based compensation under Section 162(m) to see if compensation will be paid without regard to whether the performance goal is attained if an individual terminates employment for good reason, is involuntarily terminated, or retires.

related entries

ERISA SECTION 404(c) Mar 4, 2008
415 Amendment Feb 20, 2008
Qualified Default Investment Alternatives (QDIAs) Feb 10, 2008
Automatic 401(k) Contribution Rules Feb 9, 2008
Investment Directions 401(k) Plans Feb 22, 2008

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