Proposed Regulations on Compensation Deductions for Publicly Held Corporations

The Internal Revenue Service and the Treasury Department issues proposed regulations on the compensation deductions for publicly held corporations in USA. The IRS proposed regulations are meant to provide changes from the Tax Cuts and Jobs Act (TCJA) on the tax deductibility of officers’ compensation by publicly held corporations.

IRS Guidance for Compensation Deductions in Publicly Held Corporations:

• Initially, Notice 2018-68 (PDF) was issued by the Treasury Department and IRS on 21^st august, 2018. The initial guidance on the deduction limitations is covered in this notice. The compensation deduction paid in any taxable year to a covered employee over $1 million by any publicly held corporation is disallowed in the Section 162(m).
• The 2019 proposed regulations has the latest and updated elaboration of publicly held corporation, covered employee and applicable employee compensation.

IRS ‘Grandfather Rule’ for Compensation Deductions:

• For various exceptional compensatory arrangements, a transition, or “grandfather” rule is also provided by the Tax Cuts and Jobs Act (TCJA). With this rule, the TCJA changes are not applied to compensation that is provided to a covered employee under a written binding contract. The contract should specifically be in effect on November 2, 2017 and was not modified on or subsequent to that date.
• The grandfather rule of proposed regulations is further explained when a contract will be regarded as materially modified so that it is not regarded “grandfathered” anymore.
• Tax years beginning after 31^st December, 2017 are subjected to the TCJA changes, except to the limitation of the grandfather rule.
• The proposed regulations can be followed by the taxpayers before the final regulations on compensation deductions for publicly held corporations are effective.

The IRS also issued updated regulations for business travelers and their employers in the United States on behalf of per diem rates. To get any further information, you can contact our representative at Black Ink.