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IRS Reverses 162(m) Position, Jeopardizing Deductions for Some Public Company Performance Pay Plans. . . Financial Statement Impact Ahead?
February 1, 2008 Read the memo
A new IRS private ruling considers a common type of public company incentive compensation plan for top officers, designed to qualify for the performance-based compensation exception to the $1 million deduction limit of tax code Section 162(m). Reversing prior pronouncements, the new private ruling holds that the incentive payments can never qualify for the Section 162(m) performance-based compensation exception, even if the performance conditions are ultimately fully met, because the performance vesting conditions are to be waived if the executive is fired without cause or quits for good reason before the end of the performance period.