Rules Clarify Performance-Based Pay Exception Under Section 162(m)

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March 30— The IRS issued final regulations confirming that stock-based compensation plans must provide a limit on the maximum number of shares for which individual employees may receive options and that only compensation specifically identified in the regulations is available for special transition relief in the case of newly public companies.

Issued March 30, the final rules (T.D. 9716; RIN 1545-BI65) adopt the proposed regulations (REG-137125-08) with minor modifications (122 DTR G-9, 6/24/11).

Tax code Section 162(m) limits the deduction for compensation paid to any covered employee of a public company to $1 million for the taxable year. An exception to the $1 million cap applies to performance-based compensation.