Abschnitt 162 (M) Stock Optionen

§ 162 (m) Übereinstimmung IRS Fokus auf Abschnitt 162 (m) Übereinstimmung Gemeinsamer Abschnitt 162 (m) Verstöße Wie unbeabsichtigt Abschnitt 162 (m) Verstöße auftreten Warum sollten Sie eine 162 (m) Compliance Person bestimmen 162 (m) Compliance Checkliste Sonstiges § 162 (m) Praxis Zeiger Media Artikel auf Abschnitt 162 (m) Video Webcast Panel: Die IRS Fokus auf Executive Compensation: Was es für Sie bedeutet § 162 (m) Disclosure Praxisbereich IRS Fokus auf § 162 (m) Ende 2004 wickelte das IRS ein Exekutivausgleichs-Audit-Pilotprogramm auf, in dem es Abschnitt 162 (m) Verletzungen fand, die überraschend häufig unter den zwei Dutzend Großkapitalgesellschaften waren, die es auditierte. Infolgedessen verstehen wir, daß das IRS 162 (m) non-compliance als Fokusbereich für zukünftige Audits gezielt hat. Nach § 162 (m) sind für den CEO und die nächsten vier höchstbezahlten Beamten eine Entschädigung in Höhe von mehr als einer Million pro Jahr für eine Entschädigung von mehr als einer Million pro Jahr ausgeschlossen, es sei denn, die Entschädigung erfüllt die Voraussetzungen für eine nach den von den Aktionären genehmigten Pläne. Zu den üblichen 162 (m) Compliance-Problemen gehören: Optionen, die im Rahmen eines nicht von der Aktionäre genehmigten Planvermögens (oder eingeschränkten Aktieneinheiten) gewährt werden, sofern weder die Vergabe noch die Erfüllung an objektive, vorgegebene Leistungskriterien gebunden sind Vor der Zahlung schriftlich zu bestätigen, dass die Leistungsziele erfüllt sind oder nicht rechtzeitig die Leistungsziele gesetzt haben, zB nicht innerhalb der ersten 90 Tage eines einjährigen Leistungszeitraums. Lesen Sie mehr in IRS Cracks Down auf Corporate Deductions für Executive Compensation in über 1 Million genommen. Tim Sparks, Präsident von Compensia, stellt fest, dass diese Verstöße gegen gemeinsame Verletzung von 162 (m): Optionen, die im Rahmen eines von der Aktionäre genehmigten Plans gewährt wurden. Beispielsweise können Optionen einem neuen Beamten im Rahmen eines von den Aktionären nicht genehmigten Anrechnungsplanes gewährt werden. Optionen, die im Rahmen eines Plans gewährt werden, der die Pläne periodisch überschreitet (z. B. jährlich). Bonus - oder sonstigen Anreizzahlungen (einschließlich Optionszuschüssen), die im Rahmen eines IPO-Planes durchgeführt wurden, der nach dem Börsengang nicht rechtzeitig genehmigt oder erneut genehmigt wurde. Restricted Stock (oder Restricted Stock Units) oder andere Full-Value-Awards, bei denen weder die Gewährung noch die Erfüllung an objektive, vorgegebene Leistungskriterien im Rahmen eines von Aktionären genehmigten Plans gebunden sind. Bonus oder andere Anreizzahlungen im Rahmen eines Plans, der der Kompensationsbehörde die Möglichkeit gibt, Leistungskriterien zu ändern, die am oder vor dem fünften Jahr nach dem Jahr der vorherigen Zustimmung der Aktionäre nicht erneut von den Aktionären genehmigt wurden. Die erfolgsunabhängige Vergütung übersteigt 1 Million pro Jahr. Dies kann dazu führen, dass das Gehaltsniveau der Beamten hoch ist und (i) der Bonusplan nicht auf der Basis einer leistungsorientierten Vergütung besteht, (ii) es sich um ein eingeschränktes Aktienausübungsereignis oder um eine Auszahlung im Rahmen eines aufgeschobenen Ausgleichs oder einer eingeschränkten Aktienanordnung handelt, oder (iii) Als Folge der erheblichen Nachfragen. Der Vergütungsausschuss ändert die Leistungsziele oder übt im Rahmen des Plans sonst einen unzulässigen Ermessensspielraum aus. Der Entschädigungsausschuss umfasst Personen, die nicht die technischen Voraussetzungen erfüllen, um ein Quästur-Direktor zu sein. Die Ermessensbefugnis (z. B. Optionsrechte) wird von einem qualifizierten Vergütungsausschuss (z. B. vom Gesamtausschuss) ausgeübt. Der Vergütungsausschuss bescheinigt nicht, vor der Zahlung schriftlich zu erklären, dass die Leistungsziele erfüllt sind. Die Leistungsziele sind nicht schnell genug festgelegt, z. B. . Nicht innerhalb der ersten 90 Tage eines einjährigen Leistungszeitraums. Wie unbeabsichtigt § 162 (m) Verletzungen auftreten Tim Sparks, Präsident der Compensia, stellt auch fest, dass Compensation Committees möglicherweise nicht bewusst, dass bestimmte Elemente ihres Unternehmens Executive Compensation Program nicht vollständig abzugsfähig sind. Infolgedessen können Vergütungsausschüsse Vollstreckungsentscheidungen treffen, ohne die vollen Kosten dieser Entscheidungen zu berücksichtigen. § 162 Buchst. M des Internal Revenue Code sieht eine Begrenzung der Abzugsfähigkeit von Entschädigungen an Führungskräfte öffentlicher Unternehmen vor. Die Begrenzung gilt nicht für eine leistungsorientierte Vergütung gemäß § 162 m. Wesentlich ist, dass die Grenze nicht für eine Entschädigung gilt, die auf die meisten Aktienoptionen der Mitarbeiter entfällt. Im Vorgriff auf § 162 m), die am 1. Januar 1994 in Kraft trat, haben die meisten Unternehmen ihre Kompensationsprogramme sorgfältig überprüft, um die Auswirkungen von Abschnitt 162 (m) zu bewerten. Viele Unternehmen kamen zu dem Schluss, dass die Grenze nicht für sie gelten, da ihre Führungskraft bestand aus Barausgleich, die unterhalb der Grenze und Aktienoptionen war. Andere Unternehmen haben Maßnahmen ergriffen, um die Auswirkungen von Abschnitt 162 (m) zu mildern, indem sie unter anderem die Kompensationsprogramme so strukturieren, dass sie als leistungsorientiert gelten. Seit 1994 ist die Barabfindung bei öffentlichen Unternehmen deutlich gestiegen und viele Unternehmen haben begonnen, ihre langfristigen Anreizprogramme über die traditionellen Aktienoptionen hinaus auszuweiten. Darüber hinaus können Vergütungsprogramme, die anfangs als leistungsorientiert qualifiziert sind, nicht mehr qualifizieren. Als Ergebnis können Unternehmen eine Entschädigung zahlen, die nach § 162 (m) nicht abzugsfähig ist. Entschädigungsausschüsse sind möglicherweise nicht über diese zusätzlichen Kosten informiert. Schlimmer noch, können Unternehmen steuerliche Abzüge unter Verstoß gegen § 162 (m). Es gibt mehrere gemeinsame Muster, die zu einer unbeabsichtigten Nichtabzugsfähigkeit nach Abschnitt 162 (m) führen können. Die schiere Erhöhung der Barabfindung in den vergangenen 10 Jahren kann zu einer Entschädigung führen, die die 1.000.000 pro Jahr Abzugslimite übersteigt. Oder Unternehmen mit Bonusplänen, die an objektive, finanzielle Leistungsmesswerte gebunden sind, können fälschlicherweise glauben, dass der Plan den technischen Anforderungen von Abschnitt 162 (m) genügt. Andere Unternehmen, die ihre Bonus-Pläne nach § 162 m) erstmals in Kraft gesetzt haben, können diese Qualifikation durch Nicht-Erneuerung der Aktionärsgenehmigung des Plans verloren haben. Oder anderweitig gegen die Anforderungen von Abschnitt 162 (m) verstoßen. Dies könnte beispielsweise der Fall sein, wenn der Plan dem Vergütungsausschuss einen breiten Spielraum bei der Auswahl der Finanzkennzahlen gibt, die bei der Bestimmung der Bonusauszahlungen verwendet werden sollen. Gemäß den Regelungen des § 162 m muss ein solcher Plan alle fünf Jahre von den Aktionären erneut genehmigt werden. Die Qualifizierung kann auch verloren gehen, wenn ein Plan ohne Zustimmung der Gesellschafter wesentlich geändert wurde. Unternehmen, die begonnen haben, vollwertige Aktien zu erwerben (Restricted Stock, Restricted Stock Units), können auch entdecken, dass der mit diesen Zuschüssen verbundene Steuerabzug begrenzt ist. Sofern die Gewährung oder Ausübung dieser Prämien nicht den technischen Leistungsanforderungen gemäß Abschnitt 162 (m) entspricht, unterliegen diese Beträge dem Abzugslimit. Dies könnte z. B. der Fall sein, in dem das Unternehmen beschränkte Aktien gewährt, die auf fortgesetzter Beschäftigung beruhen, auch wenn der Zuschuss eine beschleunigte Ausübung der Leistung umfasst. Compensation Committees müssen die Abschnitt 162 (m) Konsequenzen von jedem Element des Unternehmens Executive-Programm zu verstehen, um die Programme richtig zu verstehen verstehen. Darüber hinaus sollten die Ausschüsse sicherstellen, dass die Unternehmenspolitik in Bezug auf Abschnitt 162 (m), wie sich der Stimmrechtsvertreter widerspiegelt, genau und sorgfältig jedes Element des Unternehmens-Executive-Pay-Programms adressiert. Schließlich sollten die Unternehmen im Rahmen ihrer internen Kontrollen eine Prüfung der steuerlichen Absetzbarkeit nach § 162 m vorsehen. Warum sollten Sie eine 162 (m) Compliance Person bestimmen Viele Unternehmen machen technische Fuß-Fehler bei dem Versuch, eine Entschädigung als leistungsorientierte unter Internal Revenue Code Abschnitt 162 (m) die 1 Million Vorstand Entschädigung Grenze zu qualifizieren. Die Internal Revenue Service vor kurzem eine Executive-Kompensations-Audit von 24 Aktiengesellschaften abgeschlossen. Infolgedessen hat die IRS anscheinend beschlossen, dass 162 (m) Nichteinhaltung ein erhebliches Problem ist und hat es als Fokusbereich für zukünftige Audits gezielt. Non-Compliance kann in einer Reihe von Möglichkeiten entstehen, einschließlich: Manchmal versteht das Unternehmen nicht, dass Exekutivkostenzuschüsse von einem Vergütungsausschuss, bestehend aus externen Direktoren, und nicht die gesamte Kammer gemacht werden müssen Manchmal ist die Zusammensetzung des Vergütungsausschusses fehlerhaft, Wie wenn ein ehemaliger Beamter der Gesellschaft Mitglied ist Manchmal können Zuschüsse über Plangrenzen hinweg gemacht werden Manchmal werden die Anforderungen für die laufende Zustimmung der Aktionäre, wie zum Beispiel, wenn die Private-to-Public Ausnahme ausläuft, nicht richtig beobachtet Manchmal rechnungslose Erträge aus Perquisites Kann insgesamt nicht leistungsorientierte Entschädigung über 1 Mio. Manchmal kann das Management nicht die Unflexibilität eines negativen Ermessens nur Bonus-Plan, und der Plan wird ohne Rücksprache mit den Plan-Dokumente oder richtig unter Berücksichtigung der 162 (m) Konsequenzen und manchmal die Anforderung geändert Für die schriftliche Bestätigung vor der Zahlung wird nicht beobachtet. Da qualifizierende Vergütungen als leistungsorientiert technisch sind und eine detaillierte Aufmerksamkeit erfordern, sollten Unternehmen ernsthaft darüber nachdenken, einen Mitarbeiter mit einer Gesamtverantwortung für das Verständnis und die Überwachung der Einhaltung von 162 (m) zu beauftragen. Dies könnte jemand in der companys Rechtsabteilung sein. Darüber hinaus sollte die benannte Person die erforderliche Befugnis zur ordnungsgemäßen Erfüllung ihrer neuen Aufgaben erhalten, einschließlich der Möglichkeit, an Sitzungen des Vergütungsausschusses teilzunehmen, in denen 162 (m) - bezogene Geschäfte durchgeführt werden. Im Idealfall würde der Compensation Committee auch mindestens ein Mitglied mit der Verantwortung für 162 (m) Compliance, die mit der Firma 162 (m) Compliance-Person zu koordinieren. Es ist auch eine gute Idee, einige Zeit auf der Compensation Committees Agenda alle paar Jahre für eine Präsentation / Auffrischung auf 162 (m) und die Voraussetzungen, um eine Entschädigung als Leistung-basierte darunter zu planen. Media-Artikel auf Abschnitt 162 (m) quotAs CEOs Miss Goals, Goalposts Moves, Jesse Drucker, Wall Street Journal (7/7/04) (erhältlich für den Kauf) quotirS Expanding Audits von Corporate Executives Steuererklärung, sagte Mary Dalrymple, Detroit News (AP) (10.04.03) Video-Webcast-Panel: Die IRS Fokus auf Executive Compensation: Was es für Sie bedeutet Was Entschädigung Problemfelder, die das IRS jetzt zielt Wie Ausgleichskomitees sicherstellen können, dass diese Probleme nicht für sie existieren Was Aktionen Ausgleichskomitees treffen können, um Abschnitt 162 (m) Verstöße zu vermeiden 26 CFR 1.162-27 - Bestimmte Mitarbeitervergütung über 1.000.000. Beta Der Text auf der Registerkarte eCFR stellt den inoffiziellen eCFR-Text bei ecfr. gov dar. XA7 1.162-27 Bestimmte Mitarbeitervergütung über 1.000.000. A) Anwendungsbereich. Dieser Abschnitt enthält Regeln für die Anwendung der 1 Million Abzugsgrenze gemäß § 162 (m) des Internal Revenue Code. Absatz (b) dieses Abschnitts enthält die allgemeine Regelung zur Begrenzung der Abzüge gemäß § 162 (m). Absatz (c) dieses Abschnitts enthält Definitionen allgemein gültiger Begriffe. Absatz (d) dieses Abschnitts sieht eine Ausnahme von der Abzugsgrenze für eine auf Kommissionsbasis zu zahlende Entschädigung vor. Absatz (e) dieses Abschnitts stellt eine Ausnahme für qualifizierte leistungsorientierte Vergütungen dar. Die Absätze (f) und (g) dieses Abschnitts enthalten Sonderregelungen für Gesellschaften, die öffentlich gehalten werden, und Zahlungen, die Gegenstand des § 280G sind. Absatz (h) dieses Abschnitts enthält Übergangsregeln, einschließlich der Regeln für Verträge, die großvolumig sind und nicht Gegenstand von Abschnitt 162 (m) sind. Absatz (j) dieses Abschnitts enthält die Bestimmungen über den Wirksamkeitszeitpunkt. Für Regelungen über die Abzugsfähigkeit von Leistungen, die nicht unter Abschnitt 162 (m) und in diesem Abschnitt geregelt sind, siehe § 162 (a) (1) und xA7 1.162-7. Dieser Abschnitt ist nicht entscheidend, ob die Entschädigung die Anforderungen des § 162 (a) (1) erfüllt. B) Begrenzung des Abzugs. § 162 (m) schließt einen Vorsteuerabzug nach Kapitel 1 des Internal Revenue Code durch eine öffentlich haftende Körperschaft für Entschädigungen aus, die an einen überdeckten Arbeitnehmer gezahlt werden, soweit der Ausgleich für das steuerpflichtige Jahr mehr als 1.000.000 beträgt. (1) Öffentlich gehaltene Gesellschaft - (i) Allgemeine Regel. Ein öffentlich haftendes Unternehmen ist jede Kapitalgesellschaft, die eine beliebige Klasse gemeinsamer Aktien erwirbt, die zur Eintragung gemäß § 12 Börsengesetz verpflichtet ist. Ein Unternehmen gilt nicht als öffentlich gehalten, wenn die Eintragung seiner Beteiligungsrechte freiwillig ist. Für die Zwecke dieses Abschnitts bestimmt die Körperschaftsteuer, ob eine Körperschaft öffentlich gehalten wird, allein darauf, ob die Gesellschaft ab dem letzten Tag ihres Steuerjahres den Meldepflichten des § 12 Börsengesetz unterliegt. (Ii) Verbundene Gruppen. Ein öffentlich haftendes Unternehmen besteht aus einer verbundenen Unternehmensgruppe im Sinne von § 1504 (unbeschadet des § 1504 Buchstabe b). Für die Zwecke dieses Abschnitts enthält eine verbundene Unternehmensgruppe jedoch keine Tochtergesellschaft, die selbst eine öffentlich haftende Gesellschaft ist. Eine solche öffentlich haftende Tochtergesellschaft und ihre Tochtergesellschaften (sofern vorhanden) unterliegen gesondert diesem Abschnitt. Wenn ein versicherter Arbeitnehmer in einem steuerpflichtigen Jahr von mehr als einem Mitglied einer verbundenen Gruppe gezahlt wird, wird die Entschädigung jedes Mitglieds der verbundenen Gruppe mit einer Entschädigung zusammengefasst, die von allen anderen Mitgliedern der Gruppe an den gedeckten Arbeitnehmer gezahlt wird. Jeder Betrag, der als Abzug durch diesen Abschnitt verweigert wird, muss anteilig an die Körperschaften des Körpers im Verhältnis zu dem Betrag gezahlt werden, der dem abgedeckten Arbeitnehmer von einer solchen Körperschaft in dem steuerpflichtigen Jahr gezahlt wird. (2) Deckung des Arbeitnehmers - (i) Allgemeine Regel. Ein versicherter Arbeitnehmer ist jede natürliche Person, die am letzten Tag des steuerpflichtigen Jahres - (A) der geschäftsführende Gesellschafter oder in dieser Eigenschaft tätig ist oder (B) unter den vier höchsten kompensierten Beamten (außer dem Chef Geschäftsführer). (Ii) Anwendung der Vorschriften der Securities and Exchange Commission. Unabhängig davon, ob eine Einzelperson der in Absatz (c) (2) (i) (A) beschriebene Vorstandsvorsitzende oder ein in Absatz (c) (2) (i) (B) Auf die Offenlegungsvorschriften des Exekutivausschusses nach dem Börsengesetz. (I) Im Allgemeinen. Für die in Absatz (b) dieses Abschnitts beschriebene Abzugsbeschränkung gilt als Vergütung der Gesamtbetrag, der als Abzug nach Kapitel 1 des Internal Revenue Code für das steuerpflichtige Jahr (unab - hängig von § 162 m) für die Vergütung herangezogen werden darf Für Leistungen eines abgedeckten Arbeitnehmers, unabhängig davon, ob die Leistungen während des Steuerjahres erfüllt wurden oder nicht. Ii) Ausnahmen. Die Entschädigung umfasst nicht - (A) Vergütung gemäß § 3121 a) (5) (A) durch § 3121 a) (5) (D) (Vergütung, die nicht für die Zwecke der Bundesversicherungsbeiträge als Löhne behandelt wird Gesetz) und (B) Vergütungen, die sich aus Leistungen ergeben, die an oder im Auftrag eines Arbeitnehmers gewährt werden, wenn zum Zeitpunkt der Leistungserbringung vernünftigerweise davon auszugehen ist, dass der Arbeitnehmer es vom Bruttoeinkommen ausschließen kann. Darüber hinaus enthält die Entschädigung keine Gehaltsreduktionsbeiträge gemäß § 3121 (v) (1). (4) Entschädigungsausschuss. Der Vergütungsausschuss bezeichnet das Verwaltungsratsmitglied (einschließlich eines Unterausschusses der Verwaltungsratsmitglieder) des öffentlich geführten Unternehmens, das die in Absatz (e) (2) dieses Abschnitts beschriebenen Leistungsziele festlegt und verwaltet und bescheinigt, dass Leistungsziele festgelegt sind Wie in Absatz (e) (5) dieses Abschnitts beschrieben. Ein Verwaltungsratsausschuss wird nicht behandelt, weil er nicht die Befugnis hat, Leistungsziele festzulegen, nur weil die Ziele vom Verwaltungsrat der öffentlich-rechtlichen Körperschaft oder gegebenenfalls eines anderen Ausschusses des Verwaltungsrates ratifiziert werden. Siehe Abschnitt (e) (3) dieses Abschnitts für Vorschriften über die Zusammensetzung des Vergütungsausschusses. (5) Börsengesetz. Das Börsengesetz bezeichnet das Securities Exchange Act von 1934. (6) Beispiele. Dieser Absatz (c) kann durch die folgenden Beispiele veranschaulicht werden: Corporation X ist eine Aktiengesellschaft mit einem Geschäftsjahr vom 1. Juli bis zum 30. Juni. Für das am 30. Juni 1995 endende Steuerjahr des Unternehmens Xs zahlt die Gesellschaft X eine Entschädigung von 2.000.000 an A, einem Mitarbeiter. Da jedoch keine Ausgleichszahlungen an die Aktionäre gemäss den Offenlegungsvorschriften des Exekutivausschusses des Börsengesetzes zu melden sind, da A weder der Vorstandsvorsitzende noch einer der vier höchsten am letzten Tag des Steuerjahres beschäftigten Beamten ist. Da die Entschädigung nicht der Abzugsbeschränkung von Buchstabe b dieses Abschnitts unterliegt. C, ein abgedeckter Mitarbeiter, erbringt Dienstleistungen und erhält Entschädigungen von den Gesellschaften X, Y und Z, Mitglieder einer angeschlossenen Gruppe von Kapitalgesellschaften. Corporation X, die Muttergesellschaft, ist eine Aktiengesellschaft. Die Gesamtentschädigung, die C von allen verbundenen Gruppenmitgliedern gezahlt wird, beträgt 3.000.000 für das steuerpflichtige Jahr, von dem die Corporation X eine 1.500.000 Aktiengesellschaft zahlt und 900.000 Aktien zahlt. Da die von allen verbundenen Gruppenmitgliedern gezahlte Entschädigung für die Zwecke des § 162 (m) zusammengefasst ist, sind 2.000.000 der gezahlten Gesamtentschädigung nicht abzugsfähig. Die Gesellschaften X, Y und Z werden jeweils so behandelt, als würden sie einen anteiligen Teil der nicht abzugsfähigen Vergütung zahlen. So sind zwei Drittel der einzelnen Körperschaften nicht abzugsfähig. Die Gesellschaft X hat einen nicht abzugsfähigen Vergütungsaufwand von 1.000.000 (1.500.000 xD7 2.000.000 / 3.000.000). Die Gesellschaft Y hat einen nicht abzugsfähigen Ausgleichsaufwand von 600.000 (900.000 xD7 2.000.000 / 3.000.000). Corporation Z hat einen nicht abzugsfähigen Vergütungsaufwand von 400.000 (600.000 xD7 2.000.000 / 3.000.000). Die Körperschaft W, ein Steuerpflichtiger im Kalenderjahr, hat am 31. Dezember 1994 eine Bilanzsumme von mehr als 5 Mio. und eine am 31. Dezember 1994 gehaltene Anteilsklasse von 500 oder mehr Personen. Die Gesellschaft W ist jedoch nach dem Börsengesetz nicht verpflichtet Eine Registrierungserklärung in Bezug auf diese Sicherheit bis zum 30. April 1995. Somit ist die Corporation W nicht am 31. Dezember 1994 eine amtliche Aktiengesellschaft, sondern eine am 31. Dezember 1995 öffentlich gehaltene Aktiengesellschaft Beispiel 3, mit der Ausnahme, dass die Gesellschaft W am 15. Dezember 1996 bei der Securities and Exchange Commission offenbart, dass die Gesellschaft W nicht mehr gemäß Abschnitt 12 des Börsengesetzes registriert werden muss und ihre Eintragung von Wertpapieren gemäß dieser Bestimmung zu beenden. Da die Gesellschaft W seit dem 31. Dezember 1996 nicht mehr den Meldepflichten des Börsengesetzes unterliegt, ist die Gesellschaft W keine öffentlich haftende Körperschaft für das steuerpflichtige Jahr 1996, obwohl die Registrierung der Wertpapiere der Gesellschaft Ws erst nach 90 Tagen nach den W-Gesellschaften der Gesellschaft W endet Mit der Securities and Exchange Commission. (D) Ausgleich für eine Entschädigung auf Provisionsbasis. Die Abzugsgrenze in Absatz (b) dieses Abschnitts gilt nicht für eine Provisionszahlung. Zu diesem Zweck wird eine Entschädigung auf Provisionsbasis gezahlt, wenn die Tatsachen und Umstände belegen, dass sie ausschließlich aufgrund von Einkünften gezahlt werden, die direkt durch die individuelle Leistung des Einzelnen, dem die Entschädigung gezahlt wird, entstehen. Die Entschädigung ist nicht direkt dem Einzelnen zuzurechnen, da lediglich Unterstützungsdienste wie Sekretariats - oder Forschungsdienste zur Erzielung des Einkommens verwendet werden. Wird jedoch eine Entschädigung aufgrund größerer Leistungsstandards wie Einkünften eines Geschäftsbereichs der Gesellschaft gezahlt, so ist die Entschädigung für die nach diesem Absatz (d) vorgesehene Ausnahme nicht geeignet. (E) Ausnahme für qualifizierte leistungsorientierte Vergütung - (1) Allgemein. Die Abzugsgrenze in Absatz (b) dieses Abschnitts gilt nicht für eine qualifizierte erfolgsorientierte Vergütung. Eine qualifizierte leistungsorientierte Vergütung ist eine Entschädigung, die alle Anforderungen der Absätze (e) (2) bis (e) (5) dieses Abschnitts erfüllt. (2) Leistungszielvorgabe - (i) Vorbestandenes Ziel. Eine qualifizierte leistungsorientierte Vergütung muss ausschließlich aufgrund der Erreichung eines oder mehrerer vorgegebener, objektiver Leistungsziele gezahlt werden. Ein Leistungsziel gilt als vorgegeben, wenn es spätestens 90 Tage nach Beginn der Dienstzeit, auf die sich das Leistungsziel bezieht, schriftlich durch den Vergütungsausschuss festgelegt wird, sofern das Ergebnis im Zeitpunkt des Ausgleichsausschusses im Wesentlichen ungewiss ist Legt das Ziel fest. Jedoch wird in keinem Fall ein Leistungsziel als vorbestimmt angesehen, wenn es nach 25 Prozent der Dienstzeit (wie in gutem Glauben zum Zeitpunkt des Ziels festgelegt) festgelegt ist, verstrichen ist. Ein Leistungsziel ist objektiv, wenn ein Dritter, der über die relevanten Tatsachen verfügt, feststellen kann, ob das Ziel erreicht ist. Leistungsziele können auf einem oder mehreren Geschäftskriterien beruhen, die für die Einzelperson, eine Geschäftseinheit oder das Unternehmen als Ganzes gelten. Solche Geschäftskriterien könnten zum Beispiel Aktienkurs, Marktanteil, Umsatz, Ergebnis je Aktie, Eigenkapitalrendite oder Kosten umfassen. Ein Leistungsziel muss jedoch nicht auf einer Steigerung oder einem positiven Ergebnis nach einem unternehmerischen Kriterium beruhen und beispielsweise die Beibehaltung des Status quo oder die Begrenzung wirtschaftlicher Verluste (gemessen jeweils unter Bezugnahme auf ein spezifisches Geschäftskriterium) . Ein Leistungsziel umfasst nicht die bloße Fortsetzung der Beschäftigung des abgedeckten Mitarbeiters. Daher wäre eine ausschließlich auf fortge - setzte Beschäftigung beruhende Versorgungsregelung kein Leistungsziel. Siehe Abschnitt (e) (2) (vi) dieses Abschnitts für Vergütungsregelungen, die auf einer Erhöhung des Aktienkurses beruhen. (Ii) Zielkompensationsformel. Ein vorgegebenes Leistungsziel muss in Form einer objektiven Formel oder eines Standards die Methode zur Berechnung der Höhe der Entschädigung, die dem Arbeitnehmer zu zahlen ist, angeben, wenn das Ziel erreicht wird. Eine Formel oder Norm ist objektiv, wenn ein Dritter, der Kenntnis der relevanten Leistungsergebnisse hat, den an den Arbeitnehmer zu zahlenden Betrag berechnen kann. Darüber hinaus muss eine Formel oder Norm die einzelnen Mitarbeiter oder die Klasse der Mitarbeiter angeben, auf die sie zutrifft. (A) Die Begriffe einer objektiven Formel oder eines Standards müssen dem Ermessen entgegenstehen, die Höhe der Entschädigung zu erhöhen, die sonst bei der Erreichung des Ziels fällig wäre. Ein Leistungsziel ist für die Zwecke dieses Absatzes (e) (2) (iii) kein Ermessensspielraum, sondern lediglich, weil der Entschädigungsausschuss die Entschädigung oder einen anderen wirtschaftlichen Nutzen, der bei Erreichen des Ziels fällig war, verringert oder beseitigt. Jedoch darf die Ausübung eines negativen Ermessens gegenüber einem Arbeitnehmer nicht zu einer Erhöhung des an einen anderen Arbeitnehmer zu zahlenden Betrages führen. So wird z. B. bei einem Bonuspool, wenn der an jeden Mitarbeiter zu zahlende Betrag prozentual zum Pool ausgewiesen wird, die Summe dieser einzelnen Prozentpunkte des Pools nicht 100 Prozent übersteigen. Wenn die Begriffe einer objektiven Formel oder eines Standards dem Ermessen nicht entgegenstehen, die Höhe der Entschädigung nur zu erhöhen, weil die Höhe der für die Erreichung des Erfolgsziels zu zahlenden Entschädigung ganz oder teilweise auf einem Prozentsatz des Gehalts oder der Bemessungsgrundlage beruht So wird die objektive Formel oder Norm für die Zwecke dieses Absatzes (e) (2) (iii) nicht als ermessensabhängig erachtet, wenn der Wert des Gehalts und des Basisbetrags nicht zum Zeitpunkt der Festsetzung des Leistungsziels festgesetzt wird Der zu zahlende Betrag wird zu diesem Zeitpunkt festgesetzt. (B) Ist eine Entschädigung nach oder nach der Erfüllung eines Leistungsziels fällig und wird eine Änderung vorgenommen, um die Zahlung einer Entschädigung zu einem früheren Zeitpunkt nach Erreichen des Ziels zu beschleunigen, wird die Änderung als Erhöhung des Betrages behandelt Der Entschädigung, es sei denn, die Höhe der Entschädigung wird diskontiert, um angemessen den Zeitwert des Geldes zu reflektieren. Englisch: eur-lex. europa. eu/LexUriServ/LexUri...0082: EN: HTML Ist eine Entschädigung nach Erfüllung eines Leistungsziels fällig und erfolgt eine Änderung, um die Zahlung der Entschädigung auf einen späteren Zeitpunkt hinauszuschieben, wird kein Betrag gezahlt, der den ursprünglich an den Arbeitnehmer geschuldeten Betrag übersteigt Eine Erhöhung des Ausgleichsbetrags, wenn der Zusatzbetrag entweder auf einem angemessenen Zinssatz oder auf einer oder mehreren vorgegebenen tatsächlichen Beteiligungen beruht (gleichgültig, ob Vermögenswerte, die mit dem ursprünglich geschuldeten Betrag verbunden sind) tatsächlich in der Weise angewandt werden, Wird der Arbeitgeber zu einem späteren Zeitpunkt auf der tatsächlichen Rendite einer bestimmten Investition (einschließlich einer Verminderung sowie einer Erhöhung des Wertes einer Investition) basieren. Wenn eine Entschädigung in Form von Vermögensgegenständen geleistet wird, wird eine Änderung des Zeitpunkts der Übertragung dieser Eigenschaft nach der Erreichung des Ziels nicht als eine Erhöhung des Ausgleichsbetrags im Sinne dieses Absatzes (e) (2) angesehen, (Iii). Wenn also die Konditionen eines Aktienkostenzuschusses vorsehen, dass ein Bestand nach Erreichen eines Leistungsziels übertragen wird und die Übertragung des Bestandes auch einem Wartezeitplan unterliegt, wird eine Änderung des Wartezeitplans vorgenommen, die entweder beschleunigt oder verzögert Wird die Übertragung von Aktien nicht als eine Erhöhung der Höhe der Entschädigung unter dem Leistungsziel behandelt werden. (C) Entschädigungen, die einer Aktienoption, einem Aktienwertsteigerungsrecht oder einer anderen aktienbasierten Vergütung zuzurechnen sind, entsprechen nicht den Anforderungen dieses Absatzes (e) (2), sofern eine Änderung des Zuschusses oder der Zuteilung vorgenommen wird (ZB eine Aktienspaltung oder - dividende) oder eine Unternehmenstransaktion, wie etwa eine Verschmelzung eines Unternehmens in eine andere Gesellschaft, eine Konsolidierung von zwei oder mehr Gesellschaften in eine andere Körperschaft, eine etwaige Trennung eines Unternehmens (einschließlich einer Kapitalgesellschaft, Ausgliederung oder sonstige Verteilung von Beständen oder Vermögensgegenständen durch eine Kapitalgesellschaft), eine etwaige Reorganisation eines Unternehmens (unabhängig davon, ob diese Reorganisation in die Definition dieses Begriffs in § 368 fällt oder nicht) oder eine teilweise oder vollständige Liquidation durch eine Kapitalgesellschaft. (Iv) Zuschussfinanzierung. Die Feststellung, ob die Entschädigung den Anforderungen dieses Absatzes (e) (2) genügt, erfolgt grundsätzlich auf Zuschussbasis. So wird beispielsweise, ob eine auf eine Aktienoptionsbeihilfe entfallende Vergütung den Anforderungen dieses Absatzes (e) (2) grundsätzlich genügt, auf der Grundlage des jeweiligen gewährten Zuschusses und unter Berücksichtigung der Bedingungen einer anderen Optionsgewährung oder anderen Bestimmungen bestimmt Gewährung einer Entschädigung an denselben oder einen anderen Arbeitnehmer. Ein weiteres Beispiel ist, sofern in Absatz (e) (2) (vi) nicht festgelegt ist, ob eine Beschränkung oder eine andere aktienbasierte Vergütung den Anforderungen dieses Absatzes (e) (2) genügt Ausschüttungen, Dividenden, Dividendenäquivalente oder andere vergleichbare Ausschüttungen in Bezug auf Aktien auf eine solche aktienbasierte Vergütung vor dem Erreichen des Erfolgsziels zu zahlen sind. Dividenden, Dividendenäquivalente oder andere ähnliche Ausschüttungen in Bezug auf Aktien, die gemäß diesem Absatz (e) (2) (iv) als gesonderte Zuwendungen behandelt werden, sind keine erfolgsorientierte Vergütung, sofern sie nicht gesondert die Anforderungen dieses Absatzes (e) erfüllen ( 2). (V) Kompensation abhängig von der Erreichung des Leistungsziels. Eine Entschädigung genügt nicht den Anforderungen dieses Absatzes (e) (2), wenn der Sachverhalt anzeigt, dass der Arbeitnehmer die Entschädigung ganz oder teilweise erhält, unabhängig davon, ob das Leistungsziel erreicht ist. Sofern die Entschädigung im Rahmen eines Zuschusses oder eines Zuschusses nur nominal oder teilweise von der Erfüllung eines Leistungszieles abhängig ist, wird keine der im Rahmen des Zuschusses oder der Gewährung zu zahlenden Entschädigung als leistungsorientiert betrachtet. Wenn zum Beispiel ein Mitarbeiter Anspruch auf einen Bonus aus einer von zwei Vereinbarungen hat, wenn die Zahlung im Rahmen einer Nonperformance-basierten Vereinbarung von der Nichterfüllung der Leistungsziele im Rahmen einer ansonsten erfolgsorientierten Vereinbarung abhängt, dann sieht keine Vereinbarung eine Entschädigung vor Den Anforderungen dieses Absatzes (e) (2) entspricht. Bei der Entschädigung handelt es sich nicht um eine qualifizierte leistungsorientierte Entschädigung, sondern lediglich, weil der Plan die Entschädigung nach Tod, Invalidität oder Eigentums - oder Kontrollwechsel fällig macht, obwohl die Vergütung aufgrund dieser Ereignisse vor dem Erreichen des Leistungsziels tatsächlich gezahlt wurde Nicht den Anforderungen dieses Absatzes (e) (2) entsprechen. Abweichend von der allgemeinen Regel, die in Absatz (e) (2) (iv) Satz 1 dieses Abschnitts dargelegt ist, ist die Feststellung des Sachverhalts nach Absatz 1 Buchstabe e) (V) unter Berücksichtigung aller Pläne, Vereinbarungen und Vereinbarungen, die eine Entschädigung für den Arbeitnehmer vorsehen. (Vi) Anwendung von Anforderungen an Aktienoptionen und Wertsteigerungsrechte - (A) Im Allgemeinen. Entschädigungen, die einer Aktienoption oder einem Aktienwertsteigerungsrecht zuzurechnen sind, erfüllen die Voraussetzungen dieses Absatzes (e) (2), wenn der Zuschuss oder die Erteilung durch den Vergütungsausschuss den Plan vorsieht, nach dem die Option oder das Recht gewährt wird, das Maximum Englisch: eur-lex. europa. eu/LexUriServ/LexUri...0073: EN: HTML Anzahl der Aktien, für die Optionen oder Rechte während eines bestimmten Zeitraums an einen einzelnen Mitarbeiter gewährt werden können, und nach Maßgabe der Option oder des Rechts die Höhe der Entschädigung des Arbeitnehmers ausschließlich auf einer Erhöhung des Wertes von Die Aktie nach dem Tag der Gewährung oder des Zuschusses. Ein Plan kann die Anforderung erfüllen, eine Höchstanzahl von Aktien zu gewähren, für die Aktienoptionen und Aktienwertsteigerungsrechte einem einzelnen Mitarbeiter während eines bestimmten Zeitraums gewährt werden können, wenn der Plan eine aggregierte maximale Anzahl von Aktien hinsichtlich der Aktienoptionen festlegt , Aktienwertsteigerungsrechte, Restricted Stocks, Restricted Stock Units und sonstige aktienbasierte Vergütungen, die einem einzelnen Mitarbeiter während eines bestimmten Zeitraums nach einem von den Aktionären genehmigten Plan gemäß xA7 1.162-27 (e) (4) gewährt werden können. Wenn die Höhe der Entschädigung, die der Arbeitnehmer im Rahmen des Zuschusses oder Zuschusses erhalten kann, nicht nur auf eine Erhöhung des Wertes der Aktie nach dem Tag der Gewährung oder Vergabe (z. B. bei eingeschränkten Aktien oder einer Option, Die mit einem Ausübungspreis gewährt wird, der unter dem Marktwert der Aktie zum Zeitpunkt der Gewährung liegt), ist keine der auf die Gewährung oder Vergabe entfallende Entschädigung eine leistungsorientierte Vergütung gemäß diesem Absatz (e) (2) ( über). Whether a stock option grant is based solely on an increase in the value of the stock after the date of grant is determined without regard to any dividend equivalent that may be payable, provided that payment of the dividend equivalent is not made contingent on the exercise of the option. The rule that the compensation attributable to a stock option or stock appreciation right must be based solely on an increase in the value of the stock after the date of grant or award does not apply if the grant or award is made on account of, or if the vesting or exercisability of the grant or award is contingent on, the attainment of a performance goal that satisfies the requirements of this paragraph (e)(2). (B) Cancellation and repricing. Compensation attributable to a stock option or stock appreciation right does not satisfy the requirements of this paragraph (e)(2) to the extent that the number of options granted exceeds the maximum number of shares for which options may be granted to the employee as specified in the plan. If an option is canceled, the canceled option continues to be counted against the maximum number of shares for which options may be granted to the employee under the plan. If, after grant, the exercise price of an option is reduced, the transaction is treated as a cancellation of the option and a grant of a new option. In such case, both the option that is deemed to be canceled and the option that is deemed to be granted reduce the maximum number of shares for which options may be granted to the employee under the plan. This paragraph (e)(2)(vi)(B) also applies in the case of a stock appreciation right where, after the award is made, the base amount on which stock appreciation is calculated is reduced to reflect a reduction in the fair market value of stock. (vii) Examples. This paragraph (e)(2) may be illustrated by the following examples: No later than 90 days after the start of a fiscal year, but while the outcome is substantially uncertain, Corporation S establishes a bonus plan under which A, the chief executive officer, will receive a cash bonus of 500,000, if year-end corporate sales are increased by at least 5 percent. The compensation committee retains the right, if the performance goal is met, to reduce the bonus payment to A if, in its judgment, other subjective factors warrant a reduction. The bonus will meet the requirements of this paragraph (e)(2). The facts are the same as in Example 1, except that the bonus is based on a percentage of Corporation Ss total sales for the fiscal year. Because Corporation S is virtually certain to have some sales for the fiscal year, the outcome of the performance goal is not substantially uncertain, and therefore the bonus does not meet the requirements of this paragraph (e)(2). The facts are the same as in Example 1, except that the bonus is based on a percentage of Corporation Ss total profits for the fiscal year. Although some sales are virtually certain for virtually all public companies, it is substantially uncertain whether a company will have profits for a specified future period even if the company has a history of profitability. Therefore, the bonus will meet the requirements of this paragraph (e)(2). B is the general counsel of Corporation R, which is engaged in patent litigation with Corporation S. Representatives of Corporation S have informally indicated to Corporation R a willingness to settle the litigation for 50,000,000. Subsequently, the compensation committee of Corporation R agrees to pay B a bonus if B obtains a formal settlement for at least 50,000,000. The bonus to B does not meet the requirement of this paragraph (e)(2) because the performance goal was not established at a time when the outcome was substantially uncertain. Corporation S, a public utility, adopts a bonus plan for selected salaried employees that will pay a bonus at the end of a 3-year period of 750,000 each if, at the end of the 3 years, the price of S stock has increased by 10 percent. The plan also provides that the 10-percent goal will automatically adjust upward or downward by the percentage change in a published utilities index. Thus, for example, if the published utilities index shows a net increase of 5 percent over a 3-year period, then the salaried employees would receive a bonus only if Corporation S stock has increased by 15 percent. Conversely, if the published utilities index shows a net decrease of 5 percent over a 3-year period, then the salaried employees would receive a bonus if Corporation S stock has increased by 5 percent. Because these automatic adjustments in the performance goal are preestablished, the bonus meets the requirement of this paragraph (e)(2), notwithstanding the potential changes in the performance goal. The facts are the same as in Example 5, except that the bonus plan provides that, at the end of the 3-year period, a bonus of 750,000 will be paid to each salaried employee if either the price of Corporation S stock has increased by 10 percent or the earnings per share on Corporation S stock have increased by 5 percent. If both the earnings-per-share goal and the stock-price goal are preestablished, the compensation committees discretion to choose to pay a bonus under either of the two goals does not cause any bonus paid under the plan to fail to meet the requirement of this paragraph (e)(2) because each goal independently meets the requirements of this paragraph (e)(2). The choice to pay under either of the two goals is tantamount to the discretion to choose not to pay under one of the goals, as provided in paragraph (e)(2)(iii) of this section. Corporation U establishes a bonus plan under which a specified class of employees will participate in a bonus pool if certain preestablished performance goals are attained. The amount of the bonus pool is determined under an objective formula. Under the terms of the bonus plan, the compensation committee retains the discretion to determine the fraction of the bonus pool that each employee may receive. The bonus plan does not satisfy the requirements of this paragraph (e)(2). Although the aggregate amount of the bonus plan is determined under an objective formula, a third party could not determine the amount that any individual could receive under the plan. The facts are the same as in Example 7, except that the bonus plan provides that a specified share of the bonus pool is payable to each employee, and the total of these shares does not exceed 100 of the pool. The bonus plan satisfies the requirements of this paragraph (e)(2). In addition, the bonus plan will satisfy the requirements of this paragraph (e)(2) even if the compensation committee retains the discretion to reduce the compensation payable to any individual employee, provided that a reduction in the amount of one employees bonus does not result in an increase in the amount of any other employees bonus. Corporation V establishes a stock option plan for salaried employees. The terms of the stock option plan specify that no individual salaried employee shall receive options for more than 100,000 shares over any 3-year period. The compensation committee grants options for 50,000 shares to each of several salaried employees. The exercise price of each option is equal to or greater than the fair market value of a share of V stock at the time of each grant. Compensation attributable to the exercise of the options satisfies the requirements of paragraph (e)(2)(vi) of this section. If, however, the terms of the options provide that the exercise price is less than fair market value of a share of V stock at the date of grant, no compensation attributable to the exercise of those options satisfies the requirements of this paragraph (e)(2) unless issuance or exercise of the options was contingent upon the attainment of a preestablished performance goal that satisfies this paragraph (e)(2). If, however, the terms of the plan also provide that Corporation V could grant options to purchase no more than 900,000 shares over any 3-year period, but did not provide a limitation on the number of shares that any individual employee could purchase, then no compensation attributable to the exercise of those options satisfies the requirements of paragraph (e)(2)(vi) of this section. The facts are the same as in Example 9, except that, within the same 3-year grant period, the fair market value of Corporation V stock is significantly less than the exercise price of the options. The compensation committee reprices those options to that lower current fair market value of Corporation V stock. The repricing of the options for 50,000 shares held by each salaried employee is treated as the grant of new options for an additional 50,000 shares to each employee. Thus, each of the salaried employees is treated as having received grants for 100,000 shares. Consequently, if any additional options are granted to those employees during the 3-year period, compensation attributable to the exercise of those additional options would not satisfy the requirements of this paragraph (e)(2). The results would be the same if the compensation committee canceled the outstanding options and issued new options to the same employees that were exercisable at the fair market value of Corporation V stock on the date of reissue. Corporation W maintains a plan under which each participating employee may receive incentive stock options, nonqualified stock options, stock appreciation rights, or grants of restricted Corporation W stock. The plan specifies that each participating employee may receive options, stock appreciation rights, restricted stock, or any combination of each, for no more than 20,000 shares over the life of the plan. The plan provides that stock options may be granted with an exercise price of less than, equal to, or greater than fair market value on the date of grant. Options granted with an exercise price equal to, or greater than, fair market value on the date of grant do not fail to meet the requirements of this paragraph (e)(2) merely because the compensation committee has the discretion to determine the types of awards ( i. e. options, rights, or restricted stock) to be granted to each employee or the discretion to issue options or make other compensation awards under the plan that would not meet the requirements of this paragraph (e)(2). Whether an option granted under the plan satisfies the requirements of this paragraph (e)(2) is determined on the basis of the specific terms of the option and without regard to other options or awards under the plan. Corporation X maintains a plan under which stock appreciation rights may be awarded to key employees. The plan permits the compensation committee to make awards under which the amount of compensation payable to the employee is equal to the increase in the stock price plus a percentage x201Cgross upx201D intended to offset the tax liability of the employee. In addition, the plan permits the compensation committee to make awards under which the amount of compensation payable to the employee is equal to the increase in the stock price, based on the highest price, which is defined as the highest price paid for Corporation X stock (or offered in a tender offer or other arms-length offer) during the 90 days preceding exercise. Compensation attributable to awards under the plan satisfies the requirements of paragraph (e)(2)(vi) of this section, provided that the terms of the plan specify the maximum number of shares for which awards may be made. Corporation W adopts a plan under which a bonus will be paid to the CEO only if there is a 10 increase in earnings per share during the performance period. The plan provides that earnings per share will be calculated without regard to any change in accounting standards that may be required by the Financial Accounting Standards Board after the goal is established. After the goal is established, such a change in accounting standards occurs. Corporation Ws reported earnings, for purposes of determining earnings per share under the plan, are adjusted pursuant to this plan provision to factor out this change in standards. This adjustment will not be considered an exercise of impermissible discretion because it is made pursuant to the plan provision. Corporation X adopts a performance-based incentive pay plan with a four-year performance period. Bonuses under the plan are scheduled to be paid in the first year after the end of the performance period (year 5). However, in the second year of the performance period, the compensation committee determines that any bonuses payable in year 5 will instead, for bona fide business reasons, be paid in year 10. The compensation committee also determines that any compensation that would have been payable in year 5 will be adjusted to reflect the delay in payment. The adjustment will be based on the greater of the future rate of return of a specified mutual fund that invests in blue chip stocks or of a specified venture capital investment over the five-year deferral period. Each of these investments, considered by itself, is a predetermined actual investment because it is based on the future rate of return of an actual investment. However, the adjustment in this case is not based on predetermined actual investments within the meaning of paragraph (e)(2)(iii)(B) of this section because the amount payable by Corporation X in year 10 will be based on the greater of the two investment returns and, thus, will not be based on the actual rate of return on either specific investment. The facts are the same as in Example 14, except that the increase will be based on Moodys Average Corporate Bond Yield over the five-year deferral period. Because this index reflects a reasonable rate of interest, the increase in the compensation payable that is based on the indexs rate of return is not considered an impermissible increase in the amount of compensation payable under the formula. The facts are the same as in Example 14, except that the increase will be based on the rate of return for the Standard amp Poors 500 Index. This index does not measure interest rates and thus does not represent a reasonable rate of interest. In addition, this index does not represent an actual investment. Therefore, any additional compensation payable based on the rate of return of this index will result in an impermissible increase in the amount payable under the formula. If, in contrast, the increase were based on the rate of return of an existing mutual fund that is invested in a manner that seeks to approximate the Standard amp Poors 500 Index, the increase would be based on a predetermined actual investment within the meaning of paragraph (e)(2)(iii)(B) of this section and thus would not result in an impermissible increase in the amount payable under the formula. (3) Outside directors - (i) General rule. The performance goal under which compensation is paid must be established by a compensation committee comprised solely of two or more outside directors. A director is an outside director if the director - (A) Is not a current employee of the publicly held corporation (B) Is not a former employee of the publicly held corporation who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year (C) Has not been an officer of the publicly held corporation and (D) Does not receive remuneration from the publicly held corporation, either directly or indirectly, in any capacity other than as a director. For this purpose, remuneration includes any payment in exchange for goods or services. (ii) Remuneration received. For purposes of this paragraph (e)(3), remuneration is received, directly or indirectly, by a director in each of the following circumstances: (A) If remuneration is paid, directly or indirectly, to the director personally or to an entity in which the director has a beneficial ownership interest of greater than 50 percent. For this purpose, remuneration is considered paid when actually paid (and throughout the remainder of that taxable year of the corporation) and, if earlier, throughout the period when a contract or agreement to pay remuneration is outstanding. (B) If remuneration, other than de minimis remuneration, was paid by the publicly held corporation in its preceding taxable year to an entity in which the director has a beneficial ownership interest of at least 5 percent but not more than 50 percent. For this purpose, remuneration is considered paid when actually paid or, if earlier, when the publicly held corporation becomes liable to pay it. (C) If remuneration, other than de minimis remuneration, was paid by the publicly held corporation in its preceding taxable year to an entity by which the director is employed or self-employed other than as a director. For this purpose, remuneration is considered paid when actually paid or, if earlier, when the publicly held corporation becomes liable to pay it. (iii) De minimis remuneration - (A) In general. For purposes of paragraphs (e)(3)(ii)(B) and (C) of this section, remuneration that was paid by the publicly held corporation in its preceding taxable year to an entity is de minimis if payments to the entity did not exceed 5 percent of the gross revenue of the entity for its taxable year ending with or within that preceding taxable year of the publicly held corporation. (B) Remuneration for personal services and substantial owners. Notwithstanding paragraph (e)(3)(iii)(A) of this section, remuneration in excess of 60,000 is not de minimis if the remuneration is paid to an entity described in paragraph (e)(3)(ii)(B) of this section, or is paid for personal services to an entity described in paragraph (e)(3)(ii)(C) of this section. (iv) Remuneration for personal services. For purposes of paragraph (e)(3)(iii)(B) of this section, remuneration from a publicly held corporation is for personal services if - (A) The remuneration is paid to an entity for personal or professional services, consisting of legal, accounting, investment banking, and management consulting services (and other similar services that may be specified by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin), performed for the publicly held corporation, and the remuneration is not for services that are incidental to the purchase of goods or to the purchase of services that are not personal services and (B) The director performs significant services (whether or not as an employee) for the corporation, division, or similar organization (within the entity) that actually provides the services described in paragraph (e)(3)(iv)(A) of this section to the publicly held corporation, or more than 50 percent of the entitys gross revenues (for the entitys preceding taxable year) are derived from that corporation, subsidiary, or similar organization. (v) Entity defined. For purposes of this paragraph (e)(3), entity means an organization that is a sole proprietorship, trust, estate, partnership, or corporation. The term also includes an affiliated group of corporations as defined in section 1504 (determined without regard to section 1504(b)) and a group of organizations that would be an affiliated group but for the fact that one or more of the organizations are not incorporated. However, the aggregation rules referred to in the preceding sentence do not apply for purposes of determining whether a director has a beneficial ownership interest of at least 5 percent or greater than 50 percent. (vi) Employees and former officers. Whether a director is an employee or a former officer is determined on the basis of the facts at the time that the individual is serving as a director on the compensation committee. Thus, a director is not precluded from being an outside director solely because the director is a former officer of a corporation that previously was an affiliated corporation of the publicly held corporation. For example, a director of a parent corporation of an affiliated group is not precluded from being an outside director solely because that director is a former officer of an affiliated subsidiary that was spun off or liquidated. However, an outside director would no longer be an outside director if a corporation in which the director was previously an officer became an affiliated corporation of the publicly held corporation. (vii) Officer. Solely for purposes of this paragraph (e)(3), officer means an administrative executive who is or was in regular and continued service. The term implies continuity of service and excludes those employed for a special and single transaction. An individual who merely has (or had) the title of officer but not the authority of an officer is not considered an officer. The determination of whether an individual is or was an officer is based on all of the facts and circumstances in the particular case, including without limitation the source of the individuals authority, the term for which the individual is elected or appointed, and the nature and extent of the individuals duties. (viii) Members of affiliated groups. For purposes of this paragraph (e)(3), the outside directors of the publicly held member of an affiliated group are treated as the outside directors of all members of the affiliated group. (ix) Examples. This paragraph (e)(3) may be illustrated by the following examples: Corporations X and Y are members of an affiliated group of corporations as defined in section 1504, until July 1, 1994, when Y is sold to another group. Prior to the sale, A served as an officer of Corporation Y. After July 1, 1994, A is not treated as a former officer of Corporation X by reason of having been an officer of Y. Corporation Z, a calendar-year taxpayer, uses the services of a law firm by which B is employed, but in which B has a less-than-5-percent ownership interest. The law firm reports income on a July 1 to June 30 basis. Corporation Z appoints B to serve on its compensation committee for calendar year 1998 after determining that, in calendar year 1997, it did not become liable to the law firm for remuneration exceeding the lesser of 60,000 or five percent of the law firms gross revenue (calculated for the year ending June 30, 1997). On October 1, 1998, Corporation Z becomes liable to pay remuneration of 50,000 to the law firm on June 30, 1999. For the year ending June 30, 1998, the law firms gross revenue was less than 1 million. Thus, in calendar year 1999, B is not an outside director. However, B may satisfy the requirements for an outside director in calendar year 2000, if, in calendar year 1999, Corporation Z does not become liable to the law firm for additional remuneration. This is because the remuneration actually paid on June 30, 1999 was considered paid on October 1, 1998 under paragraph (e)(3)(ii)(C) of this section. Corporation Z, a publicly held corporation, purchases goods from Corporation A. D, an executive and less - than-5-percent owner of Corporation A, sits on the board of directors of Corporation Z and on its compensation committee. For 1997, Corporation Z obtains representations to the effect that D is not eligible for any commission for Ds sales to Corporation Z and that, for purposes of determining Ds compensation for 1997, Corporation As sales to Corporation Z are not otherwise treated differently than sales to other customers of Corporation A (including its affiliates, if any) or are irrelevant. In addition, Corporation Z has no reason to believe that these representations are inaccurate or that it is otherwise paying remuneration indirectly to D personally. Thus, in 1997, no remuneration is considered paid by Corporation Z indirectly to D personally under paragraph (e)(3)(ii)(A) of this section. (i) Corporation W, a publicly held corporation, purchases goods from Corporation T. C, an executive and less - than-5-percent owner of Corporation T, sits on the board of directors of Corporation W and on its compensation committee. Corporation T develops a new product and agrees on January 1, 1998 to pay C a bonus of 500,000 if Corporation W contracts to purchase the product. Even if Corporation W purchases the new product, sales to Corporation W will represent less than 5 percent of Corporation Ts gross revenues. In 1999, Corporation W contracts to purchase the new product and, in 2000, C receives the 500,000 bonus from Corporation T. In 1998, 1999, and 2000, Corporation W does not obtain any representations relating to indirect remuneration to C personally (such as the representations described in Example 3 ). (ii) Thus, in 1998, 1999, and 2000, remuneration is considered paid by Corporation W indirectly to C personally under paragraph (e)(3)(ii)(A) of this section. Accordingly, in 1998, 1999, and 2000, C is not an outside director of Corporation W. The result would have been the same if Corporation W had obtained appropriate representations but nevertheless had reason to believe that it was paying remuneration indirectly to C personally. Corporation R, a publicly held corporation, purchases utility service from Corporation Q, a public utility. The chief executive officer, and less-than-5-percent owner, of Corporation Q is a director of Corporation R. Corporation R pays Corporation Q more than 60,000 per year for the utility service, but less than 5 percent of Corporation Qs gross revenues. Because utility services are not personal services, the fees paid are not subject to the 60,000 de minimis rule for remuneration for personal services within the meaning of paragraph (e)(3)(iii)(B) of this section. Thus, the chief executive officer qualifies as an outside director of Corporation R, unless disqualified on some other basis. Corporation A, a publicly held corporation, purchases management consulting services from Division S of Conglomerate P. The chief financial officer of Division S is a director of Corporation A. Corporation A pays more than 60,000 per year for the management consulting services, but less than 5 percent of Conglomerate Ps gross revenues. Because management consulting services are personal services within the meaning of paragraph (e)(3)(iv)(A) of this section, and the chief financial officer performs significant services for Division S, the fees paid are subject to the 60,000 de minimis rule as remuneration for personal services. Thus, the chief financial officer does not qualify as an outside director of Corporation A. The facts are the same as in Example 6, except that the chief executive officer, and less-than-5-percent owner, of the parent company of Conglomerate P is a director of Corporation A and does not perform significant services for Division S. If the gross revenues of Division S do not constitute more than 50 percent of the gross revenues of Conglomerate P for Ps preceding taxable year, the chief executive officer will qualify as an outside director of Corporation A, unless disqualified on some other basis. (4) Shareholder approval requirement - (i) General rule. The material terms of the performance goal under which the compensation is to be paid must be disclosed to and subsequently approved by the shareholders of the publicly held corporation before the compensation is paid. The requirements of this paragraph (e)(4) are not satisfied if the compensation would be paid regardless of whether the material terms are approved by shareholders. The material terms include the employees eligible to receive compensation a description of the business criteria on which the performance goal is based and either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount of compensation to be paid to the employee if the performance goal is attained (except that, in the case of a formula based, in whole or in part, on a percentage of salary or base pay, the maximum dollar amount of compensation that could be paid to the employee must be disclosed). (ii) Eligible employees. Disclosure of the employees eligible to receive compensation need not be so specific as to identify the particular individuals by name. A general description of the class of eligible employees by title or class is sufficient, such as the chief executive officer and vice presidents, or all salaried employees, all executive officers, or all key employees. (iii) Description of business criteria - (A) In general. Disclosure of the business criteria on which the performance goal is based need not include the specific targets that must be satisfied under the performance goal. For example, if a bonus plan provides that a bonus will be paid if earnings per share increase by 10 percent, the 10-percent figure is a target that need not be disclosed to shareholders. However, in that case, disclosure must be made that the bonus plan is based on an earnings-per-share business criterion. In the case of a plan under which employees may be granted stock options or stock appreciation rights, no specific description of the business criteria is required if the grants or awards are based on a stock price that is no less than current fair market value. (B) Disclosure of confidential information. The requirements of this paragraph (e)(4) may be satisfied even though information that otherwise would be a material term of a performance goal is not disclosed to shareholders, provided that the compensation committee determines that the information is confidential commercial or business information, the disclosure of which would have an adverse effect on the publicly held corporation. Whether disclosure would adversely affect the corporation is determined on the basis of the facts and circumstances. If the compensation committee makes such a determination, the disclosure to shareholders must state the compensation committees belief that the information is confidential commercial or business information, the disclosure of which would adversely affect the company. In addition, the ability not to disclose confidential information does not eliminate the requirement that disclosure be made of the maximum amount of compensation that is payable to an individual under a performance goal. Confidential information does not include the identity of an executive or the class of executives to which a performance goal applies or the amount of compensation that is payable if the goal is satisfied. (iv) Description of compensation. Disclosure as to the compensation payable under a performance goal must be specific enough so that shareholders can determine the maximum amount of compensation that could be paid to any individual employee during a specified period. If the terms of the performance goal do not provide for a maximum dollar amount, the disclosure must include the formula under which the compensation would be calculated. Thus, if compensation attributable to the exercise of stock options is equal to the difference between the exercise price and the current value of the stock, then disclosure of the maximum number of shares for which grants may be made to any individual employee during a specified period and the exercise price of those options (for example, fair market value on date of grant) would satisfy the requirements of this paragraph (e)(4)(iv). In that case, shareholders could calculate the maximum amount of compensation that would be attributable to the exercise of options on the basis of their assumptions as to the future stock price. (v) Disclosure requirements of the Securities and Exchange Commission. To the extent not otherwise specifically provided in this paragraph (e)(4), whether the material terms of a performance goal are adequately disclosed to shareholders is determined under the same standards as apply under the Exchange Act. (vi) Frequency of disclosure. Once the material terms of a performance goal are disclosed to and approved by shareholders, no additional disclosure or approval is required unless the compensation committee changes the material terms of the performance goal. If, however, the compensation committee has authority to change the targets under a performance goal after shareholder approval of the goal, material terms of the performance goal must be disclosed to and reapproved by shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the performance goal. (vii) Shareholder vote. For purposes of this paragraph (e)(4), the material terms of a performance goal are approved by shareholders if, in a separate vote, a majority of the votes cast on the issue (including abstentions to the extent abstentions are counted as voting under applicable state law) are cast in favor of approval. (viii) Members of affiliated group. For purposes of this paragraph (e)(4), the shareholders of the publicly held member of the affiliated group are treated as the shareholders of all members of the affiliated group. (ix) Examples. This paragraph (e)(4) may be illustrated by the following examples: Corporation X adopts a plan that will pay a specified class of its executives an annual cash bonus based on the overall increase in corporate sales during the year. Under the terms of the plan, the cash bonus of each executive equals 100,000 multiplied by the number of percentage points by which sales increase in the current year when compared to the prior year. Corporation X discloses to its shareholders prior to the vote both the class of executives eligible to receive awards and the annual formula of 100,000 multiplied by the percentage increase in sales. This disclosure meets the requirements of this paragraph (e)(4). Because the compensation committee does not have the authority to establish a different target under the plan, Corporation X need not redisclose to its shareholders and obtain their reapproval of the material terms of the plan until those material terms are changed. The facts are the same as in Example 1 except that Corporation X discloses only that bonuses will be paid on the basis of the annual increase in sales. This disclosure does not meet the requirements of this paragraph (e)(4) because it does not include the formula for calculating the compensation or a maximum amount of compensation to be paid if the performance goal is satisfied. Corporation Y adopts an incentive compensation plan in 1995 that will pay a specified class of its executives a bonus every 3 years based on the following 3 factors: increases in earnings per share, reduction in costs for specified divisions, and increases in sales by specified divisions. The bonus is payable in cash or in Corporation Y stock, at the option of the executive. Under the terms of the plan, prior to the beginning of each 3-year period, the compensation committee determines the specific targets under each of the three factors ( i. e. the amount of the increase in earnings per share, the reduction in costs, and the amount of sales) that must be met in order for the executives to receive a bonus. Under the terms of the plan, the compensation committee retains the discretion to determine whether a bonus will be paid under any one of the goals. The terms of the plan also specify that no executive may receive a bonus in excess of 1,500,000 for any 3-year period. To satisfy the requirements of this paragraph (e)(4), Corporation Y obtains shareholder approval of the plan at its 1995 annual shareholder meeting. In the proxy statement issued to shareholders, Corporation Y need not disclose to shareholders the specific targets that are set by the compensation committee. However, Corporation Y must disclose that bonuses are paid on the basis of earnings per share, reductions in costs, and increases in sales of specified divisions. Corporation Y also must disclose the maximum amount of compensation that any executive may receive under the plan is 1,500,000 per 3-year period. Unless changes in the material terms of the plan are made earlier, Corporation Y need not disclose the material terms of the plan to the shareholders and obtain their reapproval until the first shareholders meeting held in 2000. The same facts as in Example 3, except that prior to the beginning of the second 3-year period, the compensation committee determines that different targets will be set under the plan for that period with regard to all three of the performance criteria ( i. e. earnings per share, reductions in costs, and increases in sales). In addition, the compensation committee raises the maximum dollar amount that can be paid under the plan for a 3-year period to 2,000,000. The increase in the maximum dollar amount of compensation under the plan is a changed material term. Thus, to satisfy the requirements of this paragraph (e)(4), Corporation Y must disclose to and obtain approval by the shareholders of the plan as amended. In 1998, Corporation Z establishes a plan under which a specified group of executives will receive a cash bonus not to exceed 750,000 each if a new product that has been in development is completed and ready for sale to customers by January 1, 2000. Although the completion of the new product is a material term of the performance goal under this paragraph (e)(4), the compensation committee determines that the disclosure to shareholders of the performance goal would adversely affect Corporation Z because its competitors would be made aware of the existence and timing of its new product. In this case, the requirements of this paragraph (e)(4) are satisfied if all other material terms, including the maximum amount of compensation, are disclosed and the disclosure affirmatively states that the terms of the performance goal are not being disclosed because the compensation committee has determined that those terms include confidential information, the disclosure of which would adversely affect Corporation Z. (5) Compensation committee certification. The compensation committee must certify in writing prior to payment of the compensation that the performance goals and any other material terms were in fact satisfied. For this purpose, approved minutes of the compensation committee meeting in which the certification is made are treated as a written certification. Certification by the compensation committee is not required for compensation that is attributable solely to the increase in the value of the stock of the publicly held corporation. (f) Companies that become publicly held, spinoffs, and similar transactions - (1) In general. In the case of a corporation that was not a publicly held corporation and then becomes a publicly held corporation, the deduction limit of paragraph (b) of this section does not apply to any remuneration paid pursuant to a compensation plan or agreement that existed during the period in which the corporation was not publicly held. However, in the case of such a corporation that becomes publicly held in connection with an initial public offering, this relief applies only to the extent that the prospectus accompanying the initial public offering disclosed information concerning those plans or agreements that satisfied all applicable securities laws then in effect. In accordance with paragraph (c)(1)(ii) of this section, a corporation that is a member of an affiliated group that includes a publicly held corporation is considered publicly held and, therefore, cannot rely on this paragraph (f)(1). (2) Reliance period. Paragraph (f)(1) of this section may be relied upon until the earliest of - (i) The expiration of the plan or agreement (ii) The material modification of the plan or agreement, within the meaning of paragraph (h)(1)(iii) of this section (iii) The issuance of all employer stock and other compensation that has been allocated under the plan or (iv) The first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs or, in the case of a privately held corporation that becomes publicly held without an initial public offering, the first calendar year following the calendar year in which the corporation becomes publicly held. (3) Stock-based compensation. Paragraph (f)(1) of this section will apply to any compensation received pursuant to the exercise of a stock option or stock appreciation right, or the substantial vesting of restricted property, granted under a plan or agreement described in paragraph (f)(1) of this section if the grant occurs on or before the earliest of the events specified in paragraph (f)(2) of this section. This paragraph does not apply to any form of stock-based compensation other than the forms listed in the immediately preceding sentence. Thus, for example, compensation payable under a restricted stock unit arrangement or a phantom stock arrangement must be paid, rather than merely granted, on or before the occurrence of the earliest of the events specified in paragraph (f)(2) of this section in order for paragraph (f)(1) of this section to apply. (4) Subsidiaries that become separate publicly held corporations - (i) In general. If a subsidiary that is a member of the affiliated group described in paragraph (c)(1)(ii) of this section becomes a separate publicly held corporation (whether by spinoff or otherwise), any remuneration paid to covered employees of the new publicly held corporation will satisfy the exception for performance-based compensation described in paragraph (e) of this section if the conditions in either paragraph (f)(4)(ii) or (f)(4)(iii) of this section are satisfied. (ii) Prior establishment and approval. Remuneration satisfies the requirements of this paragraph (f)(4)(ii) if the remuneration satisfies the requirements for performance-based compensation set forth in paragraphs (e)(2), (e)(3), and (e)(4) of this section (by application of paragraphs (e)(3)(viii) and (e)(4)(viii) of this section) before the corporation becomes a separate publicly held corporation, and the certification required by paragraph (e)(5) of this section is made by the compensation committee of the new publicly held corporation (but if the performance goals are attained before the corporation becomes a separate publicly held corporation, the certification may be made by the compensation committee referred to in paragraph (e)(3)(viii) of this section before it becomes a separate publicly held corporation). Thus, this paragraph (f)(4)(ii) requires that the outside directors and shareholders (within the meaning of paragraphs (e)(3)(viii) and (e)(4)(viii) of this section) of the corporation before it becomes a separate publicly held corporation establish and approve, respectively, the performance-based compensation for the covered employees of the new publicly held corporation in accordance with paragraphs (e)(3) and (e)(4) of this section. (iii) Transition period. Remuneration satisfies the requirements of this paragraph (f)(4)(iii) if the remuneration satisfies all of the requirements of paragraphs (e)(2), (e)(3), and (e)(5) of this section. The outside directors (within the meaning of paragraph (e)(3)(viii) of this section) of the corporation before it becomes a separate publicly held corporation, or the outside directors of the new publicly held corporation, may establish and administer the performance goals for the covered employees of the new publicly held corporation for purposes of satisfying the requirements of paragraphs (e)(2) and (e)(3) of this section. The certification required by paragraph (e)(5) of this section must be made by the compensation committee of the new publicly held corporation. However, a taxpayer may rely on this paragraph (f)(4)(iii) to satisfy the requirements of paragraph (e) of this section only for compensation paid, or stock options, stock appreciation rights, or restricted property granted, prior to the first regularly scheduled meeting of the shareholders of the new publicly held corporation that occurs more than 12 months after the date the corporation becomes a separate publicly held corporation. Compensation paid, or stock options, stock appreciation rights, or restricted property granted, on or after the date of that meeting of shareholders must satisfy all requirements of paragraph (e) of this section, including the shareholder approval requirement of paragraph (e)(4) of this section, in order to satisfy the requirements for performance-based compensation. (5) Example. The following example illustrates the application of paragraph (f)(4)(ii) of this section: Corporation P, which is publicly held, decides to spin off Corporation S, a wholly owned subsidiary of Corporation P. After the spinoff, Corporation S will be a separate publicly held corporation. Before the spinoff, the compensation committee of Corporation P, pursuant to paragraph (e)(3)(viii) of this section, establishes a bonus plan for the executives of Corporation S that provides for bonuses payable after the spinoff and that satisfies the requirements of paragraph (e)(2) of this section. If, pursuant to paragraph (e)(4)(viii) of this section, the shareholders of Corporation P approve the plan prior to the spinoff, that approval will satisfy the requirements of paragraph (e)(4) of this section with respect to compensation paid pursuant to the bonus plan after the spinoff. However, the compensation committee of Corporation S will be required to certify that the goals are satisfied prior to the payment of the bonuses in order for the bonuses to be considered performance-based compensation. (g) Coordination with disallowed excess parachute payments. The 1,000,000 limitation in paragraph (b) of this section is reduced (but not below zero) by the amount (if any) that would have been included in the compensation of the covered employee for the taxable year but for being disallowed by reason of section 280G. For example, assume that during a taxable year a corporation pays 1,500,000 to a covered employee and no portion satisfies the exception in paragraph (d) of this section for commissions or paragraph (e) of this section for qualified performance-based compensation. Of the 1,500,000, 600,000 is an excess parachute payment, as defined in section 280G(b)(1) and is disallowed by reason of that section. Because the excess parachute payment reduces the limitation of paragraph (b) of this section, the corporation can deduct 400,000, and 500,000 of the otherwise deductible amount is nondeductible by reason of section 162(m). (h) Transition rules - (1) Compensation payable under a written binding contract which was in effect on February 17, 1993 - (i) General rule. The deduction limit of paragraph (b) of this section does not apply to any compensation payable under a written binding contract that was in effect on February 17, 1993. The preceding sentence does not apply unless, under applicable state law, the corporation is obligated to pay the compensation if the employee performs services. However, the deduction limit of paragraph (b) of this section does apply to a contract that is renewed after February 17, 1993. A written binding contract that is terminable or cancelable by the corporation after February 17, 1993, without the employees consent is treated as a new contract as of the date that any such termination or cancellation, if made, would be effective. Thus, for example, if the terms of a contract provide that it will be automatically renewed as of a certain date unless either the corporation or the employee gives notice of termination of the contract at least 30 days before that date, the contract is treated as a new contract as of the date that termination would be effective if that notice were given. Similarly, for example, if the terms of a contract provide that the contract will be terminated or canceled as of a certain date unless either the corporation or the employee elects to renew within 30 days of that date, the contract is treated as renewed by the corporation as of that date. Alternatively, if the corporation will remain legally obligated by the terms of a contract beyond a certain date at the sole discretion of the employee, the contract will not be treated as a new contract as of that date if the employee exercises the discretion to keep the corporation bound to the contract. A contract is not treated as terminable or cancelable if it can be terminated or canceled only by terminating the employment relationship of the employee. (ii) Compensation payable under a plan or arrangement. If a compensation plan or arrangement meets the requirements of paragraph (h)(1)(i) of this section, the compensation paid to an employee pursuant to the plan or arrangement will not be subject to the deduction limit of paragraph (b) of this section even though the employee was not eligible to participate in the plan as of February 17, 1993. However, the preceding sentence does not apply unless the employee was employed on February 17, 1993, by the corporation that maintained the plan or arrangement, or the employee had the right to participate in the plan or arrangement under a written binding contract as of that date. (iii) Material modifications. (A) Paragraph (h)(1)(i) of this section will not apply to any written binding contract that is materially modified. A material modification occurs when the contract is amended to increase the amount of compensation payable to the employee. If a binding written contract is materially modified, it is treated as a new contract entered into as of the date of the material modification. Thus, amounts received by an employee under the contract prior to a material modification are not affected, but amounts received subsequent to the material modification are not treated as paid under a binding, written contract described in paragraph (h)(1)(i) of this section. (B) A modification of the contract that accelerates the payment of compensation will be treated as a material modification unless the amount of compensation paid is discounted to reasonably reflect the time value of money. If the contract is modified to defer the payment of compensation, any compensation paid in excess of the amount that was originally payable to the employee under the contract will not be treated as a material modification if the additional amount is based on either a reasonable rate of interest or one or more predetermined actual investments (whether or not assets associated with the amount originally owed are actually invested therein) such that the amount payable by the employer at the later date will be based on the actual rate of return of the specific investment (including any decrease as well as any increase in the value of the investment). (C) The adoption of a supplemental contract or agreement that provides for increased compensation, or the payment of additional compensation, is a material modification of a binding, written contract where the facts and circumstances show that the additional compensation is paid on the basis of substantially the same elements or conditions as the compensation that is otherwise paid under the written binding contract. However, a material modification of a written binding contract does not include a supplemental payment that is equal to or less than a reasonable cost-of-living increase over the payment made in the preceding year under that written binding contract. In addition, a supplemental payment of compensation that satisfies the requirements of qualified performance-based compensation in paragraph (e) of this section will not be treated as a material modification. (iv) Examples. The following examples illustrate the exception of this paragraph (h)(1): Corporation X executed a 3-year compensation arrangement with C on February 15, 1993, that constitutes a written binding contract under applicable state law. The terms of the arrangement provide for automatic extension after the 3-year term for additional 1-year periods, unless the corporation exercises its option to terminate the arrangement within 30 days of the end of the 3-year term or, thereafter, within 30 days before each anniversary date. Termination of the compensation arrangement does not require the termination of Cs employment relationship with Corporation X. Unless terminated, the arrangement is treated as renewed on February 15, 1996, and the deduction limit of paragraph (b) of this section applies to payments under the arrangement after that date. Corporation Y executed a 5-year employment agreement with B on January 1, 1992, providing for a salary of 900,000 per year. Assume that this agreement constitutes a written binding contract under applicable state law. In 1992 and 1993, B receives the salary of 900,000 per year. In 1994, Corporation Y increases Bs salary with a payment of 20,000. The 20,000 supplemental payment does not constitute a material modification of the written binding contract because the 20,000 payment is less than or equal to a reasonable cost-of-living increase from 1993. However, the 20,000 supplemental payment is subject to the limitation in paragraph (b) of this section. On January 1, 1995, Corporation Y increases Bs salary to 1,200,000. The 280,000 supplemental payment is a material modification of the written binding contract because the additional compensation is paid on the basis of substantially the same elements or conditions as the compensation that is otherwise paid under the written binding contract and it is greater than a reasonable, annual cost-of-living increase. Because the written binding contract is materially modified as of January 1, 1995, all compensation paid to B in 1995 and thereafter is subject to the deduction limitation of section 162(m). Assume the same facts as in Example 2, except that instead of an increase in salary, B receives a restricted stock grant subject to Bs continued employment for the balance of the contract. The restricted stock grant is not a material modification of the binding written contract because any additional compensation paid to B under the grant is not paid on the basis of substantially the same elements and conditions as Bs salary because it is based both on the stock price and Bs continued service. However, compensation attributable to the restricted stock grant is subject to the deduction limitation of section 162(m). (2) Special transition rule for outside directors. A director who is a disinterested director is treated as satisfying the requirements of an outside director under paragraph (e)(3) of this section until the first meeting of shareholders at which directors are to be elected that occurs on or after January 1, 1996. For purposes of this paragraph (h)(2) and paragraph (h)(3) of this section, a director is a disinterested director if the director is disinterested within the meaning of Rule 16b-3(c)(2)(i), 17 CFR 240.16b -3(c)(2)(i), under the Exchange Act (including the provisions of Rule 16b-3(d)(3), as in effect on April 30, 1991). (3) Special transition rule for previously-approved plans - (i) In general. Any compensation paid under a plan or agreement approved by shareholders before December 20, 1993, is treated as satisfying the requirements of paragraphs (e)(3) and (e)(4) of this section, provided that the directors administering the plan or agreement are disinterested directors and the plan was approved by shareholders in a manner consistent with Rule 16b-3(b), 17 CFR 240.16b -3(b), under the Exchange Act or Rule 16b-3(a), 17 CFR 240.16b -3(a) (as contained in 17 CFR part 240 revised April 1, 1990). In addition, for purposes of satisfying the requirements of paragraph (e)(2)(vi) of this section, a plan or agreement is treated as stating a maximum number of shares with respect to which an option or right may be granted to any employee if the plan or agreement that was approved by the shareholders provided for an aggregate limit, consistent with Rule 16b-3(b), 17 CFR 250.16b -3(b), on the shares of employer stock with respect to which awards may be made under the plan or agreement. (ii) Reliance period. The transition rule provided in this paragraph (h)(3) shall continue and may be relied upon until the earliest of - (A) The expiration or material modification of the plan or agreement (B) The issuance of all employer stock and other compensation that has been allocated under the plan or (C) The first meeting of shareholders at which directors are to be elected that occurs after December 31, 1996. (iii) Stock-based compensation. This paragraph (h)(3) will apply to any compensation received pursuant to the exercise of a stock option or stock appreciation right, or the substantial vesting of restricted property, granted under a plan or agreement described in paragraph (h)(3)(i) of this section if the grant occurs on or before the earliest of the events specified in paragraph (h)(3)(ii) of this section. (iv) Example. The following example illustrates the application of this paragraph (h)(3): Corporation Z adopted a stock option plan in 1991. Pursuant to Rule 16b-3 under the Exchange Act, the stock option plan has been administered by disinterested directors and was approved by Corporation Z shareholders. Under the terms of the plan, shareholder approval is not required again until 2001. In addition, the terms of the stock option plan include an aggregate limit on the number of shares available under the plan. Option grants under the Corporation Z plan are made with an exercise price equal to or greater than the fair market value of Corporation Z stock. Compensation attributable to the exercise of options that are granted under the plan before the earliest of the dates specified in paragraph (h)(3)(ii) of this section will be treated as satisfying the requirements of paragraph (e) of this section for qualified performance-based compensation, regardless of when the options are exercised. (j) Effective date - (1) In general. Section 162(m) and this section apply to compensation that is otherwise deductible by the corporation in a taxable year beginning on or after January 1, 1994. (2) Delayed effective date for certain provisions - (i) Date on which remuneration is considered paid. Notwithstanding paragraph (j)(1) of this section, the rules in the second sentence of each of paragraphs (e)(3)(ii)(A), (e)(3)(ii)(B), and (e)(3)(ii)(C) of this section for determining the date or dates on which remuneration is considered paid to a director are effective for taxable years beginning on or after January 1, 1995. Prior to those taxable years, taxpayers must follow the rules in paragraphs (e)(3)(ii)(A), (e)(3)(ii)(B), and (e)(3)(ii)(C) of this section or another reasonable, good faith interpretation of section 162(m) with respect to the date or dates on which remuneration is considered paid to a director. (ii) Separate treatment of publicly held subsidiaries. Notwithstanding paragraph (j)(1) of this section, the rule in paragraph (c)(1)(ii) of this section that treats publicly held subsidiaries as separately subject to section 162(m) is effective as of the first regularly scheduled meeting of the shareholders of the publicly held subsidiary that occurs more than 12 months after December 2, 1994. The rule for stock-based compensation set forth in paragraph (f)(3) of this section will apply for this purpose, except that the grant must occur before the shareholder meeting specified in this paragraph (j)(2)(ii). Taxpayers may choose to rely on the rule referred to in the first sentence of this paragraph (j)(2)(ii) for the period prior to the effective date of the rule. (iii) Subsidiaries that become separate publicly held corporations. Notwithstanding paragraph (j)(1) of this section, if a subsidiary of a publicly held corporation becomes a separate publicly held corporation as described in paragraph (f)(4)(i) of this section, then, for the duration of the reliance period described in paragraph (f)(2) of this section, the rules of paragraph (f)(1) of this section are treated as applying (and the rules of paragraph (f)(4) of this section do not apply) to remuneration paid to covered employees of that new publicly held corporation pursuant to a plan or agreement that existed prior to December 2, 1994, provided that the treatment of that remuneration as performance-based is in accordance with a reasonable, good faith interpretation of section 162(m). However, if remuneration is paid to covered employees of that new publicly held corporation pursuant to a plan or agreement that existed prior to December 2, 1994, but that remuneration is not performance-based under a reasonable, good faith interpretation of section 162(m), the rules of paragraph (f)(1) of this section will be treated as applying only until the first regularly scheduled meeting of shareholders that occurs more than 12 months after December 2, 1994. The rules of paragraph (f)(4) of this section will apply as of that first regularly scheduled meeting. The rule for stock-based compensation set forth in paragraph (f)(3) of this section will apply for purposes of this paragraph (j)(2)(iii), except that the grant must occur before the shareholder meeting specified in the preceding sentence if the remuneration is not performance-based under a reasonable, good faith interpretation of section 162(m). Taxpayers may choose to rely on the rules of paragraph (f)(4) of this section for the period prior to the applicable effective date referred to in the first or second sentence of this paragraph (j)(2)(iii). (iv) Bonus pools. Notwithstanding paragraph (j)(1) of this section, the rules in paragraph (e)(2)(iii)(A) that limit the sum of individual percentages of a bonus pool to 100 percent will not apply to remuneration paid before January 1, 2001, based on performance in any performance period that began prior to December 20, 1995. (v) Compensation based on a percentage of salary or base pay. Notwithstanding paragraph (j)(1) of this section, the requirement in paragraph (e)(4)(i) of this section that, in the case of certain formulas based on a percentage of salary or base pay, a corporation disclose to shareholders the maximum dollar amount of compensation that could be paid to the employee, will apply only to plans approved by shareholders after April 30, 1995. (vi) The modifications to paragraphs (e)(2)(vi)(A), (e)(2)(vii) Example 9, and (e)(4)(iv) of this section concerning the maximum number of shares with respect to which a stock option or stock appreciation right that may be granted and the amount of compensation that may be paid to any individual employee apply to compensation attributable to stock options and stock appreciation rights that are granted on or after June 24, 2011. The last two sentences of xA7 1.162-27(f)(3) apply to remuneration that is otherwise deductible resulting from a stock option, stock appreciation right, restricted stock (or other property), restricted stock unit, or any other form of equity-based remuneration that is granted on or after April 1, 2015. This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part. 26 CFR Parts 1 and 602 This document contains final regulations that provide guidance under section 987 of the Internal Revenue Code (Code) regarding the determination of the taxable income or loss of a taxpayer with respect to a qualified business unit (QBU) subject to section 987, as well as the timing, amount, character, and source of any section 987 gain or loss. Taxpayers affected by these regulations are corporations and individuals that own QBUs subject to section 987. In addition, published elsewhere in this issue of the Federal Register, temporary and proposed regulations (the temporary regulations) are being issued under section 987 to address aspects of the application of section 987 not addressed in these final regulations. 81 FR 88854 - Recognition and Deferral of Section 987 Gain or LossEffective date. These regulations are effective on December 7, 2016. Applicability date. For dates of applicability, see 1.987-1T(h), 1.987-2T(e), 1.987-3T(f), 1.987-4T(h), 1.987-6T(d), 1.987-7T(d), 1.987-8T(g), 1.987-12T(j), 1.988-1T(j), and 1.988-2T(j). This document contains temporary regulations under section 987 of the Internal Revenue Code (Code) relating to the recognition and deferral of foreign currency gain or loss under section 987 with respect to a qualified business unit (QBU) in connection with certain QBU terminations and certain other transactions involving partnerships. This document also contains temporary regulations under section 987 providing: an annual deemed termination election for a section 987 QBU an elective method, available to taxpayers that make the annual deemed termination election, for translating all items of income or loss with respect to a section 987 QBU at the yearly average exchange rate rules regarding the treatment of section 988 transactions of a section 987 QBU rules regarding QBUs with the U. S. dollar as their functional currency rules regarding combinations and separations of section 987 QBUs rules regarding the translation of income used to pay creditable foreign income taxes and rules regarding the allocation of assets and liabilities of certain partnerships for purposes of section 987. Finally, this document contains temporary regulations under section 988 requiring the deferral of certain section 988 loss that arises with respect to related-party loans. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the Proposed Rules section in this issue of the Federal Register. In addition, in the Rules and Regulations section of this issue of the Federal Register, final regulations are being issued under section 987 to provide general guidance under section 987 regarding the determination of the taxable income or loss of a taxpayer with respect to a QBU. 81 FR 88882 - Recognition and Deferral of Section 987 Gain or LossPublished elsewhere in this issue of the Federal Register, the Treasury Department and the IRS are issuing temporary regulations under section 987 of the Code relating to the recognition and deferral of foreign currency gain or loss under section 987 with respect to a qualified business unit (QBU) in connection with certain QBU terminations and certain other transactions involving partnerships. The temporary regulations also contain rules providing: An annual deemed termination election for a section 987 QBU an elective method, available to taxpayers that make the annual deemed termination election, for translating all items of income or loss with respect to a section 987 QBU at the yearly average exchange rate rules regarding the treatment of section 988 transactions of a section 987 QBU rules regarding QBUs with the U. S. dollar as their functional currency rules regarding combinations and separations of section 987 QBUs rules regarding the translation of income used to pay creditable foreign income taxes and rules regarding the allocation of assets and liabilities of certain partnerships for purposes of section 987. Finally, the temporary regulations contain rules under section 988 requiring the deferral of certain section 988 loss that arises with respect to related-party loans. The text of the temporary regulations serves as the text of these proposed regulations. 2016-12-07 vol. 81 235 - Wednesday, December 7, 201681 FR 88103 - Covered Asset Acquisitions This document contains proposed regulations that relate to the establishment of dollar-value last-in, first-out (LIFO) inventory pools by certain taxpayers that use the inventory price index computation (IPIC) pooling method. The proposed regulations provide rules regarding the proper pooling of manufactured or processed goods and wholesale or retail (resale) goods. The proposed regulations would affect taxpayers who use the IPIC pooling method and whose inventory for a trade or business consists of manufactured or processed goods and resale goods. 2016-11-25 vol. 81 227 - Friday, November 25, 201681 FR 85190 - Update to Minimum Present Value Requirements for Defined Benefit Plan Distributions This document contains proposed regulations relating to the application of section 514(c)(9)(E) of the Internal Revenue Code (Code) to partnerships that hold debt-financed real property and have one or more (but not all) qualified tax-exempt organization partners within the meaning of section 514(c)(9)(C). The proposed regulations amend the current regulations under section 514(c)(9)(E) to allow certain allocations resulting from specified common business practices to comply with the rules under section 514(c)(9)(E). These regulations affect partnerships with qualified tax-exempt organization partners and their partners. 2016-11-17 vol. 81 222 - Thursday, November 17, 201681 FR 80993 - Liabilities Recognized as Recourse Partnership Liabilities Under Section 752 Correction This document contains corrections to final and temporary regulations (TD 9788) that were published in the Federal Register on Wednesday, October 5, 2016 (81 FR 69282). The final and temporary regulations provide rules concerning how liabilities are allocated for purposes of section 707 of the Internal Revenue Code and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability under section 752. 81 FR 80993 - Liabilities Recognized as Recourse Partnership Liabilities Under Section 752 CorrectionThis document contains corrections to final and temporary regulations (TD 9788) that were published in the Federal Register on Wednesday, October 5, 2016 (81 FR 69282). The final and temporary regulations provide rules concerning how liabilities are allocated for purposes of section 707 of the Internal Revenue Code and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability under section 752. 2016-11-16 vol. 81 221 - Wednesday, November 16, 201681 FR 80587 - Section 707 Regarding Disguised Sales, Generally Correction This document contains final regulations that remove the rule that a deemed discharge of indebtedness for which a Form 1099-C, Cancellation of Debt, must be filed occurs at the expiration of a 36-month non-payment testing period. The Treasury Department and the IRS are concerned that the rule creates confusion for taxpayers and does not increase tax compliance by debtors or provide the IRS with valuable third-party information that may be used to ensure taxpayer compliance. The final regulations affect certain financial institutions and governmental entities. 2016-11-03 vol. 81 213 - Thursday, November 3, 201681 FR 76496 - Credit for Increasing Research Activities Correction Partial withdrawal of notice of proposed rulemaking and notice of proposed rulemaking, including by cross reference to temporary regulations. The notice of proposed rulemaking under sections 707 and 752 that was published in the Federal Register on January 30, 2014 (REG-119305-11, 79 FR 4826), is partially withdrawn as of October 5, 2016. Written or electronic comments and requests for a public hearing must be received by January 3, 2017. This document contains proposed regulations that incorporate the text of related temporary regulations and withdraws a portion of a notice of proposed rulemaking (REG-119305-11) to the extent not adopted by final regulations. This document also contains new proposed regulations addressing when certain obligations to restore a deficit balance in a partneraposs capital account are disregarded under section 704 of the Internal Revenue Code (Code) and when partnership liabilities are treated as recourse liabilities under section 752. These regulations would affect partnerships and their partners. 2016-10-04 vol. 81 192 - Tuesday, October 4, 201681 FR 68299 - Credit for Increasing Research Activities This document contains final regulations concerning the application of the credit for increasing research activities. These final regulations provide guidance on software that is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer (internal use software). These final regulations also include examples to illustrate the application of the process of experimentation requirement to software. These final regulations will affect taxpayers engaged in research activities involving software. 81 FR 68378 - Estate, Gift, and Generation-Skipping Transfer Taxes Restrictions on Liquidation of an Interest CorrectionThis document contains a correction to temporary regulations (TD 9776) that were published in the Federal Register on July 22, 2016 (81 FR 47701). The temporary regulations provide guidance regarding the income inclusion rules under section 50(d)(5) of the Internal Revenue Code (Code) that are applicable to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. 81 FR 65541 - Method of Accounting for Gains and Losses on Shares in Money Market Funds Broker Returns With Respect to Sales of Shares in Money Market Funds CorrectionEffective date: These regulations are effective on September 9, 2016. Applicability date: These regulations apply to distributions with annuity starting dates in plan years beginning on or after on or after January 1, 2017. In addition, a taxpayer can elect to apply these regulations with respect to any earlier period. This document contains final regulations providing guidance relating to the minimum present value requirements applicable to certain defined benefit pension plans. These regulations change the regulations regarding the minimum present value requirements for defined benefit plan distributions to permit plans to simplify the treatment of certain optional forms of benefit that are paid partly in the form of an annuity and partly in a single sum or other more accelerated form. These regulations affect participants, beneficiaries, sponsors, and administrators of defined benefit pension plans. 2016-09-02 vol. 81 171 - Friday, September 2, 201681 FR 60609 - Definition of Terms Relating to Marital Status This document contains temporary regulations that provide guidance regarding the income inclusion rules under section 50(d)(5) of the Internal Revenue Code (Code) that are applicable to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. These temporary regulations also provide rules to coordinate the section 50(a) recapture rules with the section 50(d)(5) income inclusion rules. In addition, these temporary regulations provide rules regarding income inclusion upon a lease termination, lease disposition by a lessee, or disposition of a partneraposs or S corporation shareholderaposs entire interest in a lessee partnership or S corporation outside of the recapture period. Accordingly, these regulations will affect lessees of investment credit property when the lessor of such property makes an election to treat the lessee as having acquired the property and an investment credit is determined under section 46 with respect to such lessee. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the Proposed Rules section in this issue of the Federal Register .