"Private Letter Ruling (PLR)"

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On February 21, 2008, the Internal Revenue Service (“IRS”) released Revenue Ruling 2008-13, which confirms and expands upon the position taken in Private Letter Ruling (“PLR”) 200804004 that compensation intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), will not be exempt from the $1 million deduction limit if such compensation may be paid upon a covered executive’s involuntary termination without cause by the employer, the executive’s termination for good reason or the executive’s retirement.

Continue Reading IRS Confirms Significant Change in the Landscape of 162(m) Performance-Based Compensation Arrangements

On January 25, 2008, the Internal Revenue Service (“IRS”) released Private Letter Ruling (“PLR”) 200804004. This new PLR has apparently reversed an important position that served as guidance to public companies and practitioners regarding the tax deductibility of certain performance-based pay under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). For background, Code Section 162(m) generally limits the ability of public companies from deducting compensation in excess of $1 million paid to certain executive officers. However, compensation that meets the requirements of “performance-based compensation” is exempt from the $1 million limit under Code Section 162(m). Generally, compensation qualifies as performance-based only if it is payable when predetermined performance objectives are actually achieved in accordance with performance criteria that has been approved by shareholders. The regulations under Code Section 162(m) provide that compensation does not fail to qualify as performance-based merely because compensation is payable upon death, disability or a change in ownership or control.Continue Reading Significant Change in the Landscape of 162(m) Performance-Based Compensation Arrangements