IRS ruling affects deduction of performance-based compensation

✍ Scribed by Shirley Dennis-Escoffier

• Publisher: John Wiley and Sons
• Year: 2008
• Tongue: English
• Weight: 51 KB
• Volume: 19
• Category: Article
• ISSN: 1044-8136
• DOI: 10.1002/jcaf.20440

✦ Synopsis

The Internal Revenue Service recently issued a ruling signaling a change in its position affecting the deductibility of performance-based compensation that can be paid to a highly compensated officer when that employee is terminated or retires. The ruling concludes that such compensation does not qualify for the performancebased exception, even if the compensation is paid upon the attainment of the performance goal and will result in the disallowance of a tax deduction for that employee's compensation in excess of the $1 million limit. Corporations should review their employment agreements and performance and severance plans to ensure that the deduction for this performance-based compensation is not lost.