IRS Issues Guidelines on Tax-Deductible Compensation Limits for Corporate Execs

The Internal Revenue Service today issued initial guidance addressing changes made by the new tax reform law to the deductibility of compensation for corporate executives of public companies. The tax reform bill — which was enacted in late 2017 – expanded restrictions on corporate deductions for compensation in excess of $1 million, but also included a “grandfather” rule that can be applied to certain existing compensation arrangements.

The notice provides initial guidance on the definition of “covered employees”, as well as how to apply the grandfather rule to existing binding contracts. The IRS is seeking feedback on this provision of the law that will be considered as future guidance and regulations are drafted.