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A list of US tax resources primarily of interest to Canadian practitioners.
Updated on 2008-10-28
Created on 2008-04-04
Category: Business & Finance
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Section 162(m) Revisited Author: Nelson, Daniel, PricewaterhouseCoopers
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Special rule for stock options and stock appreciation rights. The performance-based plan rules are applied differently for awards of stock options and stock appreciation rights (SARs). Under the special rule, grants of stock options will qualify as performance-based compensation(and be excluded from the $1 million limit) if the following three conditions are met: o the compensation committee must make the grant; o the compensation program governing the award of stock optionsmust state the maximum number of options that can be awarded to any employee during a stated time period; and 22 LTR 200104022, Doc 2001-2602, 2001 TNT 19-16.23 Conference agreement. 24 Treas. reg. section 1.162-27(e)(5). Doc 2005-686 (10 pgs) (C) Tax Analysts 2004. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. o the exercise price of the stock option must be at least equal to the stock’s fair market value at the time of the option grant.
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US CODE: Title 26,162. Trade or business expenses
(m) Certain excessive employee remuneration
(1) In general
In the case of any publicly held corporation, no deduction shall be allowed under this chapter for applicable employee remuneration with respect to any covered employee to the extent that the amount of such remuneration for the taxable year with respect to such employee exceeds $1,000,000.
(2) Publicly held corporation
For purposes of this subsection, the term “publicly held corporation” means any corporation issuing any class of common equity securities required to be registered under section 12 of the Securities Exchange Act of 1934.
(3) Covered employee
For purposes of this subsection, the term “covered employee” means any employee of the taxpayer if—
(A) 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
(B) 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).
(4) Applicable employee remuneration
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term “applicable employee remuneration” means, with respect to any covered employee for any taxable year, the aggregate amount allowable as a deduction under this chapter for such taxable year (determined without regard to this subsection) for remuneration for services performed by such employee (whether or not during the taxable year).
(B) Exception for remuneration payable on commission basis
The term “applicable employee remuneration” shall not include any remuneration payable on a commission basis solely on account of income generated directly by the individual performance of the individual to whom such remuneration is payable.
(C) Other performance-based compensation
The term “applicable employee remuneration” shall not include any rem
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