Source: https://www.erisalawyerblog.com/executive-compensation-irs-fin/
Timestamp: 2019-04-20 10:50:31+00:00

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Maximum Number of Shares With Respect To Which Options or Rights May Be Granted to Each Individual Employee. Section 162(m)(1) precludes a tax deduction by any publicly held corporation for compensation paid to any covered employee (the CEO and three other highest paid officers other than the CFO), to the extent that the employee’s compensation for the taxable year exceeds $1,000,000. Section 162(m)(4)(C) provides that the deduction limitation does not apply to qualified performance-based compensation. Treas. Reg. § 1.162-27(e)(1) provides that qualified performance-based compensation is remuneration that meets all of the requirements of § 1.162-27(e)(2) through (e)(5).
The Final Regulations modify § 1.162-27(e)(2)(vi)(A) to provide that a plan providing options, rights or awards satisfies a per-employee limitation requirement imposed by the regulations, if the plan specifies an aggregate maximum number of shares with respect to which stock options, stock appreciation rights, restricted stock, restricted stock units and other equity-based awards may be granted to any individual [emphasis added] employee during a specified period under a plan approved by shareholders in accordance with § 1.162-27(e)(4).
This clarification is not intended as a substantive change, but to clarify that plans cannot satisfy this per-employee limitation requirement merely by providing an aggregate maximum number of shares that may be granted to everyone covered under the plan. Instead, the plan must separately specify a maximum per individual employee on the number of options, rights or awards that may be granted in a specified period.
The Final Regulations further provide that the clarification to § 1.162-27(e)(2)(vi)(A) applies to compensation attributable to stock options and stock appreciation rights that are granted on or after June 24, 2011 (the date of publication of the Proposed Regulations).
Compensation Payable Under Restricted Stock Units Paid by Companies That Become Publicly Held. In general, § 1.162-27(f)(1) provides that when a corporation becomes publicly held, the section 162(m) deduction limitation does not apply to any remuneration paid pursuant to a compensation plan or agreement that existed during the period in which the corporation was not publicly held. Pursuant to § 1.162-27(f)(2), a corporation may rely on § 1.162-27(f)(1) until the earliest of: (i) the expiration of or a material modification of the plan or agreement; (ii) the issuance of all employer stock and other compensation that has been allocated under the plan or agreement; or (iii) the first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which an initial public offering (IPO) occurs or, in the case of a privately held corporation that becomes publicly held without an IPO, the first calendar year following the calendar year in which the corporation becomes publicly held. Section 1.162-27(f)(3) provides that the relief provided under § 1.162-27(f)(1) applies to any compensation received pursuant to the exercise of a stock option or stock appreciation right, or the substantial vesting of restricted property, granted under a plan or agreement described in § 1.162-27(f)(1) if the grant occurs on or before the earliest of the events specified in § 1.162-27(f)(2) (the “Earliest Event Date”).
The Proposed Regulations clarified the transition rule in § 1.162-27(f)(1), by providing that it applies to all compensation, other than compensation specifically identified in § 1.162-27(f)(3). Specifically, the Proposed Regulations identified compensation payable under a restricted stock unit arrangement (an “RSU”) or a phantom stock arrangement as being ineligible for the transition relief in § 1.162-27(f)(3). Therefore, the effect of the Proposed Regulations is that compensation payable under a RSU or a phantom stock arrangement is eligible for transition relief only if it is paid, and not merely granted, before the Earliest Event Date. The Final Regulations adopt the Proposed Regulations.
The Final Regulations provide that the clarification described above applies to remuneration that is otherwise deductible resulting from a stock option, stock appreciation right, restricted stock (or other property), RSU, or any other form of equity-based remuneration that is granted on or after April 1, 2015.

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