Section 162(m): Actions That Generally Should be Taken by March 31, 2012, and/or in This Year’s Proxy to Avoid the $1,000,000 Deduction Limitation
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally provides that a publicly held corporation may not deduct compensation with respect to its CEO or its three next most highly compensated officers other than its principal financial officer (each a “covered employee”) to the extent that the amount of the compensation payable to the covered employee for the taxable year exceeds $1,000,000. Compensation that qualifies as “performance-based compensation,” however, is disregarded in applying the $1,000,000 limitation.
The attached GT Alert – GTAlert_Section 162m-Avoiding 1M Ded Lim_Mar2012 - serves to remind our publicly held clients of things that need to be done early this year to minimize or avoid the application of the deduction limitations imposed by Section 162(m). This Alert also provides an overview of the basic principles contained in Section 162(m).