IRS Guidance Clarifies Some TCJA Changes to the $1 Million Deduction Limit for Executive Compensation under Code Section 162(m)

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), limits a publicly held corporation’s ability to take a corporate income tax deduction for compensation in excess of $1 million paid to “covered employees.” Section 13601 of the Tax Cuts and Jobs Act, P.L. 115-97 (“TCJA”), made a number of changes to Code section 162(m) for tax years beginning after December 31, 2017. These changes revised the definitions of “publicly held corporation,”1  “covered employee,” and “applicable employee remuneration,”2  and provided a grandfather rule pursuant to which the TCJA amendments to Code section 162(m) do not apply to remuneration payable under a written binding contract in effect on November 2, 2017, that is not thereafter materially modified.

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