Interim Section 162(m) Guidance: Days Dwindling for NQDC Plan Amendments to Delete Nondeductible Deferred Compensation Delays
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The Tax Cuts and Jobs Act of 2017 (TCJA) amended Section 162(m) of the Internal Revenue Code of 1986 (the Code). Section 162(m) generally limits the ability of publicly held corporations to deduct compensation amounts in excess of one million dollars in any year with respect to certain executives of the company that are deemed to be “covered employees” under Section 162(m). The TCJA made a number of changes to Section 162(m), including changing who is a covered employee under that section and generally eliminating the ability of publicly held corporations to exempt performance-based compensation from the one million dollars deduction limitation of Section 162(m), subject to a grandfather rule for certain arrangements. On August 21, 2018, the Treasury Department and the Internal Revenue Service (IRS) released Notice 2018-68, which provides interim guidance on certain issues under the amended Section 162(m). On December 20, 2019, proposed regulations were issued.1 This column will review some of the issues under Section 162(m), as amended by the TCJA, discussed in this interim guidance including whether publicly held corporations that sponsor nonqualified deferred compensation plans (NQDC) need to review these arrangements to determine whether the plans contain a provision that would require the sponsor to defer distribution of compensation or benefits if the sponsor reasonably anticipates that such distribution would limit the employer’s tax deduction due to the limits imposed by Section 162(m). Any NQDC plans with language requiring such a delay must be amended by no later than December 31, 2020, in order to permit earlier distribution of such amounts.
Copyright © 2020 CCH Incorporated. All Rights Reserved. Reprinted with permission from Benefits Law Journal, Winter 2020, Volume 33, Number 4, pages 1–24, with permission from Wolters Kluwer, New York, NY, 1-800-638-8437, www.WoltersKluwerLR.com
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