On March 31, 2015, final regulations of Internal Revenue Code Section 162(m) were published. The final regulations clarify exceptions to the US$1 million annual limit on deductions allowable to publicly held corporations for compensation paid to "covered employees." Covered employees include certain executive officers, such as the chief executive officer and the corporation's three other most highly compensated executive officers other than the chief financial officer. Generally, compensation paid by a publicly held corporation to its covered employees in excess of US$1 million per year is not tax deductible. This US$1 million limitation however is subject to certain exceptions, which include exceptions on performance-based compensation and compensation paid pursuant to a plan that existed prior to the corporation becoming public. The Section 162(m) final regulations amend and clarify the existing proposed regulations with regard to these two exceptions. Namely, the final regulations clarify that equity plans must provide individual limits on issuable stock, and that restricted stock units granted by newly public corporations must be paid (and not just granted) prior to the end of the transition period.
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