Client Alert

The IRS recently issued a ruling that may have a significant impact on the ability of public companies to deduct certain executive compensation under Section 162(m) of the Internal Revenue Code of 1986. In the ruling, the IRS concluded that compensation paid to one of a public company's "covered employees" would not be considered "performance-based compensation" under Section 162(m) because the executive's employment agreement permitted payment of performance awards if the executive was terminated by his employer without cause or if he terminated for good reason. The Ruling is troubling because it appears to hold that the compensation failed to qualify as performance-based compensation merely because the arrangement permitted payment under these circumstances, even if the executive ultimately met the applicable goals and was paid for reasons other than a non-cause or good reason termination.

Click here to read our client alert summarizing the recent ruling.

If you have any questions regarding this ruling, please contact Jane Jeffries Jones or Bryan L. Tyson, the principal drafters of this client alert, or you may contact the Womble Carlyle attorney with whom you usually work, one of our Corporate and Securities attorneys or one of our Employee Benefits attorneys.