IRS Issues Proposed Rule Under IRC 162(m)

The Internal Revenue Service has issued a proposed rule under IRC  Sec.162(m) to identify “covered employees” and nondeductible compensation following the expansion of 162(m) to include non-officers under the American Rescue Plan Act of 2021. The proposal provides that any employee of any corporation in an affiliated group that includes a public company may be one of the five highest compensated employees of the publicly held corporation regardless of whether the employee is an employee of or performs services for the publicly held corporation. The deductible compensation paid by all such affiliates also would be included in determining whether the individual is one of the top five highest paid employees and the deductible amount. The proposal provides that “covered employees” are determined for each publicly held entity within the controlled group and defines the related affiliated organization for each public company for purposes of aggregating compensation.

Comments are due within 60 days of publication in the Federal Register. This guidance is relevant to executive compensation consulting.