Summary
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IRS
issued Notice 2007-49
6.04.07
- Interpretive guidance on identification of
covered employees for purposes of IRC §162(m)(3),
which was prompted by recent changes to SEC executive pay disclosure rules
IRS
interpretation of covered employees includes
- Principal executive officer (within
meaning of amended SEC disclosure rules); and
- Any employee (other than principal executive officer or
principal financial
officer) whose total compensation must be reported to shareholders under
Exchange Act by reason of such employee being among three highest compensated
officers for taxable year
Definition does not include individuals for whom SEC executive pay disclosure is
required on account of individual being principal
financial officer
- Congressional amendments to IRC §162(m) may expand group of
covered employees
- Text of
H.R. 2
2.01.07
- No certainty as to effective date of any
legislative change
- Mayer Brown Rowe & Maw article
2.09.07
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Covered Employees
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Background
Information
-
IRC 162(m)
limits deductibility of remuneration in excess of $1 million paid to
covered employees of public companies
-
IRC 162(m)(3)
defines covered employees as any employee of the taxpayer if
- As of the close of the taxable year, such employee is the
chief executive officer of the taxpayer or is an individual
acting in such a capacity, or
- The total compensation of such employee for the taxable
year is required to be reported to shareholders under the
Securities Exchange Act of 1934 by reason of such employee being among the 4 highest compensated officers for the taxable
year (other than the chief executive officer).
-
Section 1.162-27(c)(2)(ii) of IRS regulations provides that such status is
determined pursuant to SEC executive pay disclosure rules
- Prior to 2006 revisions, definition of
covered employees for purposes of IRC §162(m)
matched definition of named executive officers for
purposes of SEC executive pay disclosure rules
- Under new rules, named
executive officers include 1) company's
principal
executive officer, 2) company's
principal financial officer, and 3) company's three
most highly compensated officers other than PEO and PFO
- IRS and SEC definitions no
longer match -- definition of covered employee
includes one officer based on position (CEO) and
four officers based on compensation, while definition of
named executive officer now
includes two officers based on position (PEO and PFO) and three officers based
on compensation
IRS Notice 2007-49
- IRS
will interpret covered employees to include:
- Principal executive officer (within
meaning of amended SEC disclosure rules); and
- Any employee (other than principal executive officer or
principal financial
officer) whose total compensation must be reported to shareholders under
Exchange Act by reason of such employee being among three highest compensated
officers for taxable year
- Covered employee
does not include those individuals for whom disclosure as named executive officer is required on basis of individual being
principal financial officer (within meaning of
amended disclosure rules)
Section 162(m) Audit Techniques Guide (02-2005)
SEC_CODE_REF_0090001192884
- Published by IRS in 2005, and available on IRS
website
- Non-comprehensive list of questions for examining
agent to ask in initial interview
Planning
Considerations
- in future, congressional amendments to IRC §162(m) may expand group of
covered employees
- Text of H.R. 2
2.01.07
- No certainty as to effective date of any
legislative change
- Mayer Brown Rowe & Maw article
2.09.07
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Named Executive Officers
NEOs
Named
executive officers NEOs include:
- Principal executive officer PEO
- Principal financial officer PFO
- Three most highly compensated executive officers
- Other than the
PEO and PFO
- Whose total compensation for last
fiscal year
exceeds $100,000
- Up to two additional former executive officers
- Individuals for whom disclosure would have been
required but for the fact that they were no longer serving as executive officers
at the end of the last completed fiscal year
- Whose total compensation for last
fiscal year
exceeds $100,000
Revised as part of 2006 changes to executive compensation disclosure
rules
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Commentary
Related Topics
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