IRS Releases Preliminary Guidance Clarifying Section 162(m) Deduction Limitations

The IRS released Notice 2018-68, which provides preliminary guidance on section 162(m). As amended by the Tax Cuts and Jobs Act, section 162(m) disallows the deduction for performance-based executive compensation and expands the definition of “covered employees” for the $1 million deduction limitation. The Notice provides that “covered employees” include the chief executive officer and chief financial officer and the three highest-compensated employees apart from these two positions. Additionally, the Notice confirms that material modifications to an agreement, such as an increase in compensation, will cause an agreement to no longer be grandfathered. The initial guidance does not address other issues such as deferred compensation and stock options.

Read more: IRS Narrowly Interprets Some Exec Comp Transition Rules 
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Read the Notice 2018-68


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