Proposed Rule2025-00728
Certain Employee Remuneration in Excess of $1,000,000 Under Internal Revenue Code Section 162(m)
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Published
January 16, 2025
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document sets forth proposed regulations under section 162(m) of the Internal Revenue Code, which limits the deduction for certain employee remuneration in excess of $1,000,000 for Federal income tax purposes. These proposed regulations implement the amendments made to section 162(m) by the American Rescue Plan Act of 2021. These proposed regulations would affect publicly held corporations.
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<title>Federal Register, Volume 90 Issue 10 (Thursday, January 16, 2025)</title>
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[Federal Register Volume 90, Number 10 (Thursday, January 16, 2025)]
[Proposed Rules]
[Pages 4691-4699]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00728]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-118988-22]
RIN 1545-BQ87
Certain Employee Remuneration in Excess of $1,000,000 Under
Internal Revenue Code Section 162(m)
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document sets forth proposed regulations under section
162(m) of the Internal Revenue Code, which limits the deduction for
certain employee remuneration in excess of $1,000,000 for Federal
income tax purposes. These proposed regulations implement the
amendments made to section 162(m) by the American Rescue Plan Act of
2021. These proposed regulations would affect publicly held
corporations.
DATES: Written or electronic comments and requests for a public hearing
must be received by March 17, 2025.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-118988-
22) by following the online instructions for submitting comments.
Requests for a public hearing must be submitted as prescribed in the
``Comments and Requests for a Public Hearing'' section of this
preamble. Once submitted to the Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comments submitted to the IRS's public docket. Send paper submissions
to: CC:PA:01:PR (REG-118988-22), Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Ilya Enkishev at (202) 317-5600; concerning submissions of comments
and/or requests for a public hearing, contact the Publications and
Regulations Section of the Office of Associate Chief Counsel (Procedure
and Administration) by email at <a href="/cdn-cgi/l/email-protection#611114030d080209040013080f0612210813124f060e17"><span class="__cf_email__" data-cfemail="8cfcf9eee0e5efe4e9edfee5e2ebffcce5feffa2ebe3fa">[email protected]</span></a> (preferred) or
by telephone at (202) 317-6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
These proposed regulations are issued under the express delegation
of authority under section 7805 of the Code. Section 7805(a) directs
the Secretary of the Treasury or her delegate to prescribe all needful
rules and regulations for the enforcement of the Code, including all
rules and regulations as may be necessary by reason of any alteration
of law in relation to internal revenue.
Background
This document sets forth proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 162(m). Section 162(m)(1)
disallows a deduction by any publicly held corporation for applicable
employee remuneration that is otherwise deductible with respect to any
covered employee to the extent that such remuneration for the taxable
year exceeds $1,000,000.\1\ Section 162(m) was added to the Internal
Revenue Code (Code) by section 13211(a) of the Omnibus Budget
Reconciliation Act of 1993 (Pub. L. 103-66, 107 Stat. 312, 469).
Proposed regulations under section 162(m) were published in the Federal
Register by the Treasury Department and the IRS on December 20, 1993
(58 FR 66310) (1993 proposed regulations). On December 2, 1994, the
Treasury Department and the IRS published in the Federal Register
amendments to the proposed regulations (59 FR 61884) (1994 proposed
regulations). On December 20, 1995, the Treasury Department and the
[[Page 4692]]
IRS published in the Federal Register final regulations under section
162(m) (TD 8650) (60 FR 65534) (1995 regulations).
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\1\ As a result, for example, such disallowed amounts generally
may not be capitalized. See Sec. Sec. 1.263(a)-1(b) and 1.263A-
1(c)(2).
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In 2017, section 162(m) was amended by section 13601 of the Tax
Cuts and Jobs Act (TCJA) (Pub. L. 115-97, 131 Stat. 2054, 2155 (2017)).
Specifically, section 13601 of TCJA amended the definitions of covered
employee, publicly held corporation, and applicable employee
remuneration in section 162(m). On December 20, 2019, the Treasury
Department and the IRS published in the Federal Register proposed
regulations relating to the TCJA amendments (84 FR 70356). On December
30, 2020, the Treasury Department and the IRS published in the Federal
Register final regulations (TD 9932) relating to the TCJA amendments
(85 FR 86481) (the current regulations).
Section 162(m)(3) provides the definition of ``covered employee.''
Specifically, section 162(m)(3) defines the term ``covered employee''
as an ``employee of the taxpayer'' if (1) the employee is the principal
executive officer (PEO) or principal financial officer (PFO) of the
taxpayer at any time during the taxable year, or was an individual
acting in such a capacity, (2) the total compensation of the employee
for the taxable year is required to be reported to shareholders under
the Securities Exchange Act of 1934 (Exchange Act) by reason of the
employee being among the three highest compensated officers for the
taxable year (other than the PEO and PFO), or (3) the individual was a
covered employee of the taxpayer (or any predecessor) for any preceding
taxable year beginning after December 31, 2016. Section 162(m)(3) also
contains flush language providing that a covered employee includes any
employee of the taxpayer whose total compensation for the taxable year
places the individual among the three highest compensated officers for
the taxable year (other than any individual who is the PEO or PFO of
the taxpayer at any time during the taxable year, or was an individual
acting in such a capacity) even if the compensation of the officer is
not required to be reported to shareholders under the Exchange Act.
In 2021, section 162(m) was amended by section 9708 of the American
Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2, 135 Stat. 4, 206) to
expand the definition of covered employee for taxable years beginning
after December 31, 2026. The ARP amended the definition of ``covered
employee'' in section 162(m)(3) by adding section 162(m)(3)(C),\2\
which includes any employee who is among the five highest compensated
employees for the taxable year other than the PEO or PFO (as identified
in section 162(m)(3)(A)) or the three highest compensated executive
officers for the taxable year (as identified in section 162(m)(3)(B)).
This amendment is effective for taxable years beginning after December
31, 2026. These proposed regulations (proposed regulations) would
provide guidance on this amendment.
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\2\ The addition of section 162(m)(3)(C) resulted in pre-ARP
section 162(m)(3)(C) being redesignated as section 162(m)(3)(D).
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Explanation of Provisions
I. Definition of Employee
These proposed regulations would provide that, for purposes of
determining whether an employee is one of the five highest compensated
employees as defined in new section 162(m)(3)(C), the term ``employee''
means an ``employee'' as defined in section 3401(c). In general, under
section 3401(c) and the corresponding regulations, the term
``employee'' includes a common law employee and an officer of a
corporation. Accordingly, for purposes of section 162(m)(3)(C), the
term ``employee'' would include, but not be limited to, executive
officers.\3\
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\3\ This interpretation is consistent with the description of
section 162(m)(3)(C) by the Joint Committee on Taxation in General
Explanation of the Tax Legislation Enacted in the 117th Congress.
JCS-1-23, 129 (Dec. 2023).
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The text of section 162(m)(3)(C) does not exclude an individual who
is a covered employee as defined in section 162(m)(3)(D). Accordingly,
these proposed regulations would provide that a covered employee by
reason of section 162(m)(3)(C) includes an individual who is both one
of the five highest compensated employees for the current taxable year
(regardless of whether the individual is employed on the last day of
the taxable year) and also a covered employee on the basis of being a
covered employee for a preceding taxable year (as provided in section
162(m)(3)(D)).
II. Determination of the Five Highest Compensated Employees
These proposed regulations would use ``compensation'' as defined in
paragraph (c)(3) of the current regulations (that is, compensation that
would (but for section 162(m)) be allowable as a deduction) to
determine whether an employee is one of the five highest compensated
employees as defined in new section 162(m)(3)(C). The Treasury
Department and the IRS expect this approach to be easily administrable
because taxpayers currently track compensation to determine their tax
liability for the taxable year.
Because section 162(m)(3)(B) determines the three highest
compensated employees based on the total compensation required to be
disclosed under the Exchange Act for executive officers, the Treasury
Department and the IRS considered using this approach to determine the
five highest compensated employees for purposes of section
162(m)(3)(C). These proposed regulations would not adopt this approach
because, unlike the statutory text of section 162(m)(3)(B), section
162(m)(3)(C) does not reference compensation disclosure under the
Exchange Act. Furthermore, unlike the covered employees defined in
section 162(m)(3)(B), the five highest compensated employees under
section 162(m)(3)(C) are not limited to executive officers.
Like the 1995 regulations, Sec. 1.162-33(c)(1)(ii) of the current
regulations defines the term ``publicly held corporation'' to include
an affiliated group of corporations, as defined in section 1504
(without regard to section 1504(b)) (affiliated group) that includes a
corporation that is a publicly held corporation.\4\ This definition was
needed in the 1995 regulations because, among other things, the
executive officers to whom section 162(m) applied could include
officers of subsidiaries,\5\ and their remuneration could come from
subsidiaries, as well, so failure to include members of the affiliated
group would have thwarted Congress's intent to deny a deduction for all
compensation of a covered employee in excess of $1 million per year.\6\
The definition also confirmed that each member of the affiliated group
is potentially a ``taxpayer'' within the meaning of section 162(m)(3).
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\4\ These proposed regulations take the same approach as the
current regulations of using ``publicly held corporation'' to mean
the affiliated group (as defined in Sec. 1.162-33(c)(1)(ii)) of
which the corporation that is a publicly held corporation (as
defined in Sec. 1.162-33(c)(1)(i)) is a part, and distinguishing
between the two only where necessary.
\5\ See 17 CFR 229.402, Instructions to Item 402(a)(3).
\6\ See H.R. Conf. Rep. No. 103-213, at 585 (1993) (``Unless
specifically excluded, the deduction limitation applies to all
remuneration for services.'').
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The Treasury Department and the IRS are now similarly concerned
that a publicly held corporation may employ many of its highest
compensated employees at subsidiaries, and may even attempt to alter
the composition of its five highest compensated employees
[[Page 4693]]
(as defined in section 162(m)(3)(C)) by transferring highly compensated
employees to a subsidiary or by adopting a holding company structure,
thereby thwarting Congress's intent to expand significantly the number
of covered employees whose compensation is subject to section
162(m).\7\ Accordingly, these proposed regulations would provide that
any employee of any corporation in the affiliated group 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, as defined in Sec. 1.162-
33(c)(1)(i).
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\7\ See, for example, the Joint Committee on Taxation estimate
that the amendment would raise $7.8 billion through Fiscal Year
2031. JCX-14-21, 3 (March 9, 2021).
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Consistent with the rule in the current regulations for affiliated
groups that contain more than one publicly held corporation (as defined
in Sec. 1.162-33(c)(1)(i)), these proposed regulations would provide
that in such an affiliated group, each publicly held corporation has
its own set of five highest compensated employees (as defined in
section 162(m)(3)(C)). Because, as explained in the preceding
paragraph, those individuals may be employees of a corporation in the
affiliated group that is not a publicly held corporation, the
affiliated group is divided into smaller affiliated groups for this
purpose, each consisting of a publicly held corporation and certain
affiliated non-publicly held corporations, if any. These proposed
regulations provide rules for dividing up the affiliated group for this
purpose.
Similar to the current regulations, these proposed regulations
would provide that, if an employee of a publicly held corporation (as
defined in Sec. 1.162-33(c)(1)(i)) is paid compensation by more than
one member of an affiliated group, then compensation paid to the
employee by each member of the affiliated group is aggregated in
determining whether the employee is one of the five highest compensated
employees. These proposed regulations would provide rules similar to
the rules in the current regulations, but reflecting the rules
described in the preceding paragraphs, for situations in which an
individual performs services for members of an affiliated group that
contains more than one publicly held corporation, and might also
contain one or more corporations that are not publicly held
corporations. Specifically, these proposed regulations would provide
that whether the individual is one of the five highest compensated
employees of a publicly held corporation is determined separately with
respect to each publicly held corporation in the group, excluding
compensation taken into account with respect to another publicly held
corporation of the affiliated group. Section 1.162-33(c)(2)(i)(D)(4) of
the proposed regulations also explains how that determination is made.
For purposes of section 162(m), an affiliated group includes a
foreign corporation. Pursuant to the 1995 regulations and the current
regulations, compensation includes remuneration paid by a member of an
affiliated group that is a foreign corporation to the extent it is
otherwise allowable as a deduction under chapter 1 of the Code.
Accordingly, such compensation would be taken into account under these
proposed regulations, among other things, to determine whether an
individual is one of the five highest compensated employees.
Compensation and other expenses of a foreign corporation normally may
be taken as a deduction by the foreign corporation in computing its
U.S. income tax, and thus may be actually be disallowed by section
162(m), only if they are incurred in connection with a trade or
business carried on in the United States.\8\ However, if the foreign
corporation is a controlled foreign corporation as defined in section
957,\9\ a pro rata share of certain types of income less associated
deductions may be taken into account by a United States shareholder of
the corporation under subpart F (sections 951 through 965). To assist
taxpayers with compliance, section 1.162-33(c)(3)(iii) of the proposed
regulations would add an explicit rule to the definition of
compensation regarding remuneration paid by a controlled foreign
corporation that is a member of a publicly held corporation's
affiliated group. This rule is not a substantive change to the 1995
regulations and the current regulations. Comments are requested on the
application of these proposed rules to controlled foreign corporations,
and whether these proposed rules should apply to controlled foreign
corporations that are not members of an affiliated group.
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\8\ See section 882(c)(1).
\9\ In relevant part, section 957(a) defines a controlled
foreign corporation as a foreign corporation of which more than 50%
(vote or value) is owned by United States shareholders as defined in
section 951(b). Publicly held corporations as defined in section
162(m)(2) can be treated as United States shareholders.
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These proposed regulations would also provide that an ``employee''
of a publicly held corporation includes an individual who, under
section 3401(c), is an ``employee'' of a person other than the publicly
held corporation (such as a related but unaffiliated organization or
certified professional employer organization) but nevertheless
functions as an employee of the publicly held corporation in that the
individual performs substantially all the individual's services during
the taxable year for the publicly held corporation. Consequently, these
proposed regulations would provide that, in such circumstance, to the
extent allowable as a deduction to the publicly held corporation,
amounts paid to the individual or to a third party to obtain the
services performed by the individual are considered ``compensation.''
Absent such a rule, the adoption of the section 3401(c) definition by
these proposed regulations could permit avoidance of section 162(m)
through the use of third-party payors, which is not a concern under
sections 162(m)(3)(A) and (B) due to their inclusion of all individuals
acting as executive officers and the application of the executive
compensation disclosure rules under the Exchange Act.
III. Amendment to the Current Regulations
These proposed regulations also include a technical correction that
would amend the reference to Example 22 in the conclusion to the facts
in Example 23 (section 1.162-33(c)(1)(vi)(W)(2)) in the current
regulations. The correct reference is to Example 20 of the current
regulations. These proposed regulations would make that correction.
Proposed Applicability Date
These regulations generally are proposed to apply to compensation
that is otherwise deductible for taxable years beginning after the
later of December 31, 2026, or the date of publication of the Treasury
decision adopting these rules as final regulations in the Federal
Register. The amendment to the conclusion of Example 23 in section
1.162-33(c)(1)(vi)(W)(2)) of the current regulations is proposed to
apply to taxable years ending on or after January 16, 2025.
Statement of Availability of IRS Documents
For copies of recently issued revenue procedures, revenue rulings,
notices and other guidance published in the Internal Revenue Bulletin,
please visit the IRS website at <a href="http://www.irs.gov">www.irs.gov</a> or contact the
Superintendent of Documents, U.S.
[[Page 4694]]
Government Publishing Office, Washington, DC 20402.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter
6), it is hereby certified that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. This certification is based on the fact that section
162(m)(1) applies only to publicly held corporations (for example,
corporations that list securities on a national securities exchange and
are rarely small entities) and only impacts those publicly held
corporations that compensate certain employees in excess of $1,000,000
in a taxable year.
III. Section 7805(f)
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. This proposed rule does not include any Federal mandate that
may result in expenditures by State, local, or Tribal governments, or
by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications, does not impose substantial direct compliance
costs on State and local governments, and does not preempt State law
within the meaning of the Executive order.
Comments and Requests for a Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in the preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. All comments submitted will
be made available at <a href="http://www.regulations.gov">www.regulations.gov</a> or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically by
sending an email to <a href="/cdn-cgi/l/email-protection#4e3e3b2c22272d262b2f3c2720293d0e273c3d60292138"><span class="__cf_email__" data-cfemail="562623343a3f353e3337243f383125163f242578313920">[email protected]</span></a>. If a public hearing is
scheduled, notice of the date and time for the public hearing will be
published in the Federal Register.
Drafting Information
The principal author of these regulations is Ilya Enkishev, Office
of Associate Chief Counsel (Employee Benefits, Exempt Organizations,
and Employment Taxes). However, other personnel from the Treasury
Department and the IRS participated in the development of these
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Section 1.162-33 is amended by:
0
a. Revising paragraphs (c)(1)(vi)(W)(2) and (c)(2)(i)(C);
0
b. Adding paragraphs (c)(2)(i)(D) and (c)(2)(vii)(CC) through (EE);
0
c. Redesignating paragraphs (c)(3)(iii) and (iv) as paragraphs
(c)(3)(v) and (vi);
0
d. Adding new paragraphs (c)(3)(iii) and (iv) and adding paragraphs
(c)(3)(vi)(D) and (E);
0
e. Revising paragraph (h)(2)(ii)(C); and
0
f. Adding paragraphs (h)(2)(ii)(F) and G.
The revisions and additions read as follows:
Sec. 1.162-33 Certain employee remuneration in excess of $1,000,000
not deductible for taxable years beginning after December 31, 2017.
* * * * *
(c) * * *
(1) * * *
(vi) * * *
(W) * * *
(2) Conclusion. The result is the same as in paragraph
(c)(1)(vi)(T) of this section (Example 20). Even though Corporations P,
Q, and R each are publicly held corporations, they comprise an
affiliated group. Because Employee C is a covered employee of both
Corporations P and Q, the amount disallowed as a deduction is prorated
separately between Corporations P and R and between Corporations Q and
R.
* * * * *
(2) * * *
(i) * * *
(C) Any individual who was a covered employee of the publicly held
corporation (or any predecessor of a publicly held corporation, within
the meaning of paragraph (c)(2)(ii) of this section) for any preceding
taxable year beginning after December 31, 2016, other than an
individual who was a covered employee in that year solely on account of
paragraph (c)(2)(i)(D) of this section. For taxable years beginning
prior to January 1, 2018, covered employees are identified in
accordance with the rules in Sec. 1.162-27(c)(2).
(D) The five highest compensated employees of the publicly held
corporation for the taxable year regardless of whether the individual
is serving at the end of the publicly held corporation's taxable year,
other than any individual described in paragraph (c)(2)(i)(A) or (B) of
this section, determined in accordance with the rules in this paragraph
(c)(2)(i)(D). See paragraph (c)(3)(iv) of this section for a special
rule treating certain employees of a person other than the publicly
held corporation as employees of the publicly held corporation.
(1) Compensation. The amount of compensation used to identify the
five most highly compensated employees for the taxable year for
purposes of paragraph (c)(2)(i)(D) of this section is the amount of
compensation as defined in paragraph (c)(3) of this section, provided
that, in determining compensation for purposes of applying this
paragraph (c)(2)(i)(D), references to ``covered employee'' or ``covered
[[Page 4695]]
employee (as defined in paragraphs (c)(2)(i) through (v) of this
section)'' in paragraph (c)(3) of this section shall be replaced with
references to ``employee.''
(2) Employee. For purposes of this paragraph (c)(2)(i)(D), the term
``employee'' means an employee as defined in section 3401(c).
(3) Determining the employees eligible to be the five highest
compensated employees with respect to an affiliated group with one
publicly held corporation. In the case of an affiliated group (as
defined in paragraph (c)(1)(ii) of this section) that includes one
publicly held corporation (as defined in paragraph (c)(1)(i) of this
section), an employee of any member of the affiliated group is eligible
to be one of the five highest compensated employees of the publicly
held corporation regardless of whether the individual is an employee of
the publicly held corporation itself or performs services for the
publicly held corporation itself.
(4) Determining the employees eligible to be the five highest
compensated employees with respect to an affiliated group with more
than one publicly held corporation. In the case of an affiliated group
(as defined in paragraph (c)(1)(ii) of this section) that includes more
than one publicly held corporation (as defined in paragraph (c)(1)(i)
of this section), the group of employees eligible to be the five
highest compensated employees is determined separately with respect to
the parent corporation (as defined below) and each publicly held
corporation (as defined in paragraph (c)(1)(i) of this section) that is
not the parent corporation (an additional publicly held corporation).
For this purpose, the parent corporation is the highest corporation in
the chain or chains of includible corporations (that comprise the
affiliated group) that is a publicly held corporation as defined in
paragraph (c)(1)(i) of this section. In the case of an affiliated group
in which more than one member may be the parent corporation (such as
where a common parent that is not publicly held owns multiple publicly
held corporations), the affiliated group must choose which member to
treat as the parent corporation for the taxable year. With respect to
the parent corporation, an employee of any member of the affiliated
group, excluding a member of an affiliated group of an additional
publicly held corporation (as defined below), is eligible to be one of
its five highest compensated employees regardless of whether the
individual is an employee of the parent corporation itself or performs
services for the parent corporation itself. Similarly, with respect to
an additional publicly held corporation, any employee of the affiliated
group of the additional publicly held corporation is eligible to be one
of its five highest compensated employees regardless of whether the
individual is an employee of the additional publicly held corporation
itself or performs services for the additional publicly held
corporation itself. For this purpose, an affiliated group of an
additional publicly held corporation means, with respect to any
corporation, the affiliated group which would be determined under
section 1504(a) if such corporation were the common parent and if
section 1504(b) did not apply. These rules similarly apply to all
additional publicly held corporations, beginning at the bottom of each
chain of corporations and proceeding up until all members of the
affiliated group that may be so allocated have been allocated to one
(and only one) affiliated group of an additional publicly held
corporation. If the affiliated group includes only publicly held
corporations (as defined in paragraph (c)(1)(i) of this section), the
affiliated group used to determine the employees eligible to be each
publicly held corporation's five highest compensated employees is that
publicly held corporation itself.
(5) Determining the five highest compensated employees in an
affiliated group. In determining whether an employee is one of the five
highest compensated employees with respect to the parent corporation
(as defined in paragraph (c)(2)(i)(D)(4) of this section) for the
taxable year, compensation paid by each member of the affiliated group
(as defined in paragraph (c)(1)(ii) of this section) in the taxable
year, excluding any member of an affiliated group of an additional
publicly held corporation (as defined in paragraph (c)(2)(i)(D)(4) of
this section), is aggregated. In determining whether an employee is one
of the five highest compensated employees with respect to a publicly
held corporation (as defined in paragraph (c)(1)(i) of this section) in
an affiliated group of an additional publicly held corporation,
compensation paid by each member of the affiliated group of the
additional publicly held corporation in the taxable year is aggregated.
(6) Application of proration rules. The proration rules in
paragraph (c)(1)(ii)(B) of this section generally apply in the same way
to covered employees determined under this paragraph (c)(2)(i)(D),
except that a publicly held corporation or publicly held payor
corporation refers to the portion of the affiliated group of which the
publicly held corporation (as defined in paragraph (c)(1)(i) of this
section) is a part, as determined under paragraph (c)(2)(i)(D)(4) of
this section.
* * * * *
(vii) * * *
(CC) Example 29 (Individual as one of the five highest compensated
employees of a publicly held corporation that includes the affiliated
group)--(1) Facts. Corporation CO is a publicly held corporation for
its 2026 and 2027 taxable years. Corporation CP is a foreign
corporation and is a wholly-owned subsidiary of Corporation CO.
Corporation CP is a controlled foreign corporation, but the only income
it has is effectively connected with a U.S. trade or business.
Corporation CO is a partner in Partnership CQ (a partnership for
Federal tax purposes). Under the partnership agreement, Corporation CO
has a 50% distributive share of the partnership's income, gain, loss,
deductions, and credits. These allocations comply with section 704(b)
and its regulations. Employee E.O. is an employee of Corporation CO. In
2026, Employee E.O. is a covered employee of Corporation CO because
Employee E.O. is one of the three highest compensated executive
officers of Corporation CO. In 2027, Employee E.O. is not an executive
officer of Corporation CO but performs services for and receives
compensation from Corporations CO for services as its employee.
Furthermore, in 2027, Employee E.O. performs services for and receives
compensation from Corporation CP and Partnership CQ (Employee E.O. is
not a partner of Partnership CQ). In 2027, the total compensation paid
to Employee E.O. is $3,600,000, of which Corporation CO pays
$1,500,000, Corporation CP pays $900,000, and Partnership CQ pays
$1,200,000. For the 2027 taxable year, the total compensation paid to
any employee of Corporations CO and CP did not exceed $2,500,000.
(2) Conclusion (Compensation paid by Corporation CO). The
$1,500,000 in compensation paid by Corporation CO is taken into account
to determine whether Employee E.O. is one of the five highest
compensated employees of Corporation CO for its 2027 taxable year.
(3) Conclusion (Compensation paid by Corporation CP). Corporations
CO and CP are an affiliated group as defined in paragraph (c)(1)(ii) of
this section. Therefore, the $900,000 in compensation paid by
Corporation CP is taken into account to determine whether Employee E.O.
is one of the five highest compensated employees of Corporation CO for
its 2027 taxable year. Because a publicly held corporation includes an
[[Page 4696]]
affiliated group for purposes of paragraph (c)(3) of this section, the
result would be the same even if there were intermediary privately held
subsidiaries between Corporations CO and CP as long as all these
corporations comprised an affiliated group.
(4) Conclusion (Compensation paid by Partnership CQ). Under
paragraph (c)(3)(ii) of this section, Corporation CO's $600,000
distributive share of Partnership CQ's deduction (50% of $1,200,000) is
compensation that is taken into account to determine whether Employee
E.O. is one of the five highest compensated employees of Corporation CO
for its 2027 taxable year. Because a publicly held corporation includes
an affiliated group for purposes of paragraph (c)(3) of this section,
the result would be the same even if there were an intermediary
privately held subsidiary between Corporation CO and Partnership CQ (so
that, instead of Corporation CO, an intermediary subsidiary was a
partner in Partnership CQ), as long as Corporation CO and the
intermediary subsidiary comprised an affiliated group.
(5) Conclusion (Employee E.O. as a covered employee). Because the
aggregate compensation taken into account with respect to Employee E.O.
is $3,000,000 ($1,500,000 + $900,000 + $600,000), Employee E.O. is a
covered employee of Corporation CO for its 2027 taxable year by reason
of being one of its five highest compensated employees for the taxable
year as provided in paragraph (c)(2)(i)(D) of this section (even though
Employee E.O. is also a covered employee of Corporation CO for its 2027
taxable year by reason of being a covered employee for its 2026 taxable
year (as provided in paragraph (c)(2)(i)(C) of this section)).
(6) Conclusion (Amount disallowed as a deduction). Because the
compensation paid by all affiliated group members is aggregated for
purposes of section 162(m)(1), the aggregate compensation of $3,000,000
exceeds the limitation in section 162(m)(1) and $2,000,000 of the
compensation paid to Employee E.O. is nondeductible. Corporations CO
and CP each are treated as paying a ratable portion of the
nondeductible compensation. Thus, two thirds of each corporation's
payment will be nondeductible. Taking into account Corporation CO's
$600,000 distributive share of the Partnership CQ's deduction,
Corporation CO has an otherwise allowable deduction of $2,100,000
($1,500,000 + $600,000). Therefore, Corporation CO has a nondeductible
compensation expense of $1,400,000 ($2,100,000 x $2,000,000/
$3,000,000). Corporation CP has an otherwise allowable deduction of
$900,000, of which $600,000 ($900,000 x $2,000,000/$3,000,000) is a
nondeductible compensation expense.
(DD) Example 30 (Individual as one of the five highest compensated
employees of a publicly held corporation that includes the affiliated
group and affiliated groups of additional publicly held corporations)--
(1) Facts. Corporations CR, CT, and CV are publicly held corporations
for their 2027 taxable years. Corporations CS and CU are privately held
for their 2027 taxable years. Corporation CT is a subsidiary of
Corporation CS, which is a subsidiary of Corporation CR. Corporation CV
is a subsidiary of Corporation CU, which is a subsidiary of Corporation
CT. Corporations CR, CS, CT, CU, and CV are members of an affiliated
group. Employee EP is an employee of Corporations CR, CS, CU, and CV.
In 2027, Employee EP performs services for and receives compensation
from Corporations CR, CS, CU, and CV. The total compensation paid to
Employee EP from the affiliated group members is $7,000,000 for the
taxable year, of which Corporation CR pays $1,200,000, Corporation CS
pays $1,800,000, Corporation CU pays $1,500,000, and Corporation CV
pays $2,500,000.
(2) Conclusion (Employee EP is eligible to be a covered employee of
Corporation CR). Because Employee EP is an employee of Corporation CR,
Employee EP is eligible to be one of the five highest compensated
employees of Corporation CR. Even though Corporations CR, CS, CT, CU,
and CV comprise an affiliated group as defined in paragraph (c)(1)(ii)
of this section, because Corporations CT and CV are additional publicly
held corporations of the affiliated group, the affiliated group
contains affiliated groups of these additional publicly held
corporations (as defined in paragraph (c)(2)(i)(D)(4) of this section).
Compensation paid by the affiliated groups of these additional publicly
held corporations is not taken into account to determine whether
Employee EP is one of the five highest compensated employees of
Corporation CR for its 2027 taxable year. Accordingly, Corporations CT
and CU comprise an affiliated group of an additional publicly held
corporation (Corporation CT), and compensation paid by Corporation CU
is not taken into account to determine whether Employee EP is one of
the five highest compensated employees of Corporation CR for its 2027
taxable year. Furthermore, Corporation CV is an affiliated group of an
additional publicly held corporation (Corporation CV), and compensation
paid by Corporation CV is not taken into account to determine whether
Employee EP is one of the five highest compensated employees of
Corporation CR for its 2027 taxable year. Therefore, only the
$1,200,000 in compensation paid by Corporation CR and the $1,800,000
paid by Corporation CS are taken into account to determine whether
Employee EP is one of the five highest compensated employees of
Corporation CR for its 2027 taxable year.
(3) Conclusion (Employee EP is eligible to be a covered employee of
Corporation CT). Because Corporation CT is a publicly held corporation,
Corporations CT and CU comprise an affiliated group of an additional
publicly held corporation (as defined in paragraph (c)(2)(i)(D)(4) of
this section). Because an employee of any member of the affiliated
group is eligible to be one of the five highest compensated employees
of the publicly held corporation (regardless of whether the employee
performs services for the publicly held corporation), Employee EP is
eligible to be a covered employee of Corporation CT, even though
Employee EP does not perform services for Corporation CT. Because only
compensation paid by a member of the affiliated group of the additional
publicly held corporation in the taxable year is taken into account to
determine whether an individual is one of the five highest compensated
employees with respect to the additional publicly held corporation,
only compensation paid by Corporation CU is taken into account to
determine whether Employee EP is one of the five highest compensated
employees of Corporation CT for its 2027 taxable year. Accordingly, the
$1,500,000 in compensation paid by Corporation CU is taken into account
to determine whether Employee EP is one of the five highest compensated
employees of Corporation CT for its 2027 taxable year.
(4) Conclusion (Employee EP is eligible to be a covered employee of
Corporation CV). Because Employee EP is an employee of Corporation CV,
Employee EP is eligible to be one of the five highest compensated
employees of Corporation CV. Because Corporation CV is a publicly held
corporation, Corporation CV comprises an affiliated group of an
additional publicly held corporation (as defined in paragraph
(c)(2)(i)(D)(4) of this section). Because only compensation paid by a
member of the affiliated group of the additional publicly held
corporation in the taxable year is taken into account to determine
whether an individual is one of the five highest compensated employees
with
[[Page 4697]]
respect to the additional publicly held corporation, only compensation
paid by Corporation CV is taken into account to determine whether
Employee EP is one of the five highest compensated employees of
Corporation CV for its 2027 taxable year. Accordingly, the $2,500,000
in compensation paid by Corporation CV is taken into account to
determine whether Employee EP is one of the five highest compensated
employees of Corporation CV for its 2027 taxable year.
(5) Conclusion (Employee EP as covered employee of Corporation CR).
The $1,200,000 in compensation paid by Corporation CR and the
$1,800,000 in compensation paid by Corporation CS are taken into
account to determine whether Employee EP is one of the five highest
compensated employees of Corporation CR for its 2027 taxable year. If,
pursuant to paragraph (c)(2)(i)(D) of this section, Employee EP is a
covered employee of Corporation CR, then Corporation CR's deduction for
$1,200,000 and Corporation CS's deduction for $1,800,000 for the 2027
taxable year would be subject to the section 162(m)(1) limit. Because
the compensation paid by the affiliated group members is aggregated for
purposes of section 162(m)(1), the aggregate compensation of $3,000,000
exceeds the limitation in section 162(m)(1) and $2,000,000 of the
compensation paid to Employee EP would be nondeductible. Corporations
CR and CS each are treated as paying a ratable portion of the
nondeductible compensation. Corporation CR has an otherwise allowable
deduction of $1,200,000, of which $800,000 ($1,200,000 x $2,000,000/
$3,000,000) would be a nondeductible compensation expense. Corporation
CS has an otherwise allowable deduction of $1,800,000, of which
$1,200,000 ($1,800,000 x $2,000,000/$3,000,000) would be a
nondeductible compensation expense.
(6) Conclusion (Employee EP as covered employee of Corporation CT).
The $1,500,000 in compensation paid by Corporation CU is taken into
account to determine whether Employee EP is one of the five highest
compensated employees of Corporation CT for its 2027 taxable year. If,
pursuant to paragraph (c)(2)(i)(D) of this section, Employee EP is a
covered employee of Corporation CT, then Corporation CU's deduction for
$1,500,000 for the 2027 taxable year would be subject to the section
162(m)(1) limit. Accordingly, pursuant to paragraph (c)(2)(i)(D)(6) of
this section, Corporation CU would have a nondeductible compensation
expense of $500,000.
(7) Conclusion (Employee EP as covered employee of Corporation CV).
The $2,500,000 in compensation paid by Corporation CV is taken into
account to determine whether Employee EP is one of the five highest
compensated employees of Corporation CV for its 2027 taxable year. If,
pursuant to paragraph (c)(2)(i)(D) of this section, Employee EP is a
covered employee of Corporation CV, then Corporation CV's deduction for
$2,500,000 for the 2027 taxable year would be subject to the section
162(m)(1) limit. Accordingly, Corporation CV would have a nondeductible
compensation expense of $1,500,000.
(EE) Example 31 (Individual as one of the five highest compensated
employees of a publicly held corporation that includes the affiliated
group that chooses a parent corporation)--(1) Facts. Corporations CX
and CY are publicly held corporations for their 2027 taxable years.
Corporations CW and CZ are privately held corporations for their 2027
taxable years. Corporations CX and CY are subsidiaries of Corporation
CW. Corporations CX and CY each directly own 50% (by vote and value) of
Corporation CZ's only class of stock. In 2027, Employee EQ performs
services for and receives compensation from Corporations CW, CX, CY,
and CZ. The total compensation paid to Employee EQ from all
corporations is $4,700,000 for the taxable year, of which Corporation
CW pays $1,500,000, Corporation CX pays $900,000, Corporation CY pays
$1,700,000, and Corporation CZ pays $600,000.
(2) Conclusion (Employee EQ is eligible to be a covered employee of
Corporations CX and CY). Because Employee EQ is an employee of
Corporations CX and CY, Employee EQ is eligible to be one of the five
highest compensated employees of these publicly held corporations.
Because both Corporations CX and CY are the highest publicly held
corporations in the chain of includible corporations that comprise an
affiliated group (composed of Corporations CW, CX, CY, and CZ) as
defined in paragraph (c)(1)(ii) of this section, the affiliated group
may choose to treat either Corporation CX or CY as the parent
corporation for the 2027 taxable year. If the affiliated group chooses
to treat Corporation CX as the parent corporation, then only
compensation paid by Corporations CW, CX, and CZ is taken into account
to determine whether Employee EQ is one of the five highest compensated
employees of Corporation CX for the 2027 taxable year. Because
Corporation CY is an affiliated group of the additional publicly held
corporation composed of one corporation (Corporation CY), only
compensation paid by Corporation CY is taken into account to determine
whether Employee EQ is one of the five highest compensated employees of
Corporation CY. A similar analysis would apply if the affiliated group
chose to treat Corporation CY as the parent.
(3) Conclusion (Employee EQ as a covered employee of Corporation
CX). The $1,500,000 in compensation paid by Corporation CW, the
$900,000 paid by Corporation CX, and the $600,000 in compensation paid
by Corporation CZ (that is, aggregate compensation of $3,000,000) are
taken into account to determine whether Employee EQ is one of the five
highest compensated employees of Corporation CX for its 2027 taxable
year. If, pursuant to paragraph (c)(2)(i)(D) of this section, Employee
EQ is a covered employee of Corporation CX, then Corporation CW's
deduction for $1,500,000, Corporation CX's deduction for $900,000, and
Corporation CZ's deduction for $600,000 for the 2027 taxable year would
be subject to the section 162(m)(1) limit. Because the compensation
paid by the affiliated group members is aggregated for purposes of
section 162(m)(1), the aggregate compensation of $3,000,000 exceeds the
limitation in section 162(m)(1) and $2,000,000 of the compensation paid
to Employee EQ would be nondeductible. Corporations CW, CX, and CZ each
are treated as paying a ratable portion of the nondeductible
compensation. Corporation CW would have a nondeductible compensation
expense of $1,000,000 ($1,500,000 x $2,000,000/$3,000,000). Corporation
CX would have a nondeductible compensation expense of $600,000
($900,000 x $2,000,000/$3,000,000). Corporation CZ would have a
nondeductible compensation expense of $400,000 ($600,000 x $2,000,000/
$3,000,000).
(4) Conclusion (Employee EQ as a covered employee of Corporation
CY). The $1,700,000 in compensation paid by Corporation CY is taken
into account to determine whether Employee EQ is one of the five
highest compensated employees of Corporation CY for its 2027 taxable
year. If, pursuant to paragraph (c)(2)(i)(D) of this section, Employee
EQ is a covered employee of Corporation CY, then Corporation CY's
deduction for $1,700,000 for the 2027 taxable year would be subject to
the section 162(m)(1) limit. Accordingly, Corporation CY would have a
nondeductible compensation expense of $700,000.
[[Page 4698]]
(3) * * *
(iii) Compensation paid by a controlled foreign corporation that is
a member of an affiliated group. For purposes of paragraph (c)(3)(i) of
this section, compensation includes a publicly held corporation's pro
rata share (as determined under the principles of sections 951(a)(2)
and 951A(e)(1)) of the amounts that would be claimed by a controlled
foreign corporation (as defined in section 957) that is a member of an
affiliated group (as defined in paragraph (c)(1)(ii) of this section)
as properly allocable to gross income included under sections 951(a)(1)
and 951A(a) under sections 954(b)(5), 951A(c)(2)(A)(ii), and similar
provisions, determined without regard to the disallowance of any such
expenses by reason of section 162(m) and these regulations, for
compensation expenses attributable to the remuneration paid by the
controlled foreign corporation to a covered employee of a publicly held
corporation for services performed by the covered employee.
(iv) Amounts paid to individuals performing substantially all their
services for a publicly held corporation. Notwithstanding paragraph
(c)(2)(i)(D)(2) of this section, for purposes of paragraph (c)(2)(i)(D)
of this section, an employee of a publicly held corporation includes an
individual who, pursuant to section 3401(c), is an employee of a person
other than the publicly held corporation but performs substantially all
the individual's services during the relevant taxable year for the
publicly held corporation. Consequently, for purposes of paragraph
(c)(3) of this section, compensation includes the aggregate amount
allowable as a deduction to the publicly held corporation under chapter
1 of the Internal Revenue Code for the taxable year (determined without
regard to section 162(m)(1)) to obtain the services performed by such
individual, whether or not the particular services that give rise to
the deduction were performed during the relevant taxable year. This
rule applies regardless of how the amounts allowable as a deduction are
paid or denominated, and regardless of whether the individual is
compensated directly or by a third-party payor, including a related
organization or certified professional employer organization under
section 7705. The disallowance under paragraph (b) of this section
likewise is applied to those amounts, however denominated, otherwise
allowable as a deduction to obtain those services. Nothing in the
previous sentence is intended to imply that such amounts paid to a
third party for services by a covered employee, however denominated,
are not already treated as remuneration for those services and thus
compensation for purposes of paragraph (c)(3) of this section.
* * * * *
(D) Example 4--(1) Facts. Corporation U is a publicly held
corporation for its 2027 taxable year and is not a member of an
affiliated group. Corporation U has a services agreement with unrelated
Corporation V. In Corporation U's 2027 taxable year, it pays $1,500,000
to Corporation V pursuant to the agreement in exchange for the services
of an interim chief accountant (Individual E) in the same year. The
$1,500,000 is otherwise deductible for Corporation U's 2027 taxable
year. Individual E performs substantially all Individual E's services
in 2027 for Corporation U.
(2) Conclusion. Pursuant to paragraph (c)(3)(iv) of this section,
Individual E is treated as an employee of Corporation U for purposes of
this section. The $1,500,000 paid to Corporation V by Corporation U in
2027 is compensation within the meaning of paragraph (c)(3) of this
section and is taken into account to determine whether Individual E is
a covered employee as one of the five highest compensated employees of
Corporation U for its 2027 taxable year. If, pursuant to paragraph
(c)(2)(i)(D) of this section, Individual E is a covered employee of
Corporation U, then Corporation U's deduction for $1,500,000 for the
2027 taxable year is subject to the section 162(m)(1) limit. Because a
publicly held corporation includes an affiliated group for purposes of
paragraph (c)(3) of this section, the result would be the same even if
Corporation U owned a privately held subsidiary, and Individual E
performed substantially all Individual E's services for the subsidiary.
In addition, the result would also be the same if Individual E
performed substantially all Individual E's services for both
Corporation U and its subsidiary, as long as Corporation U and its
subsidiary comprised an affiliated group (regardless of whether
Corporation U or its subsidiary paid the $1,500,000 to Corporation V).
In such case, pursuant to paragraph (c)(1)(ii) of this section, the
amount disallowed as a deduction would be prorated between Corporation
U and its subsidiary. Furthermore, the result would be the same even if
Individual E were an employee of Corporation U (regardless of whether
Individual E were also an employee of Corporation V).
(E) Example 5--(1) Facts. Corporation W is a publicly held
corporation for its 2027 taxable year and is not a member of an
affiliated group. Corporation W is a partner in Partnership X (a
partnership for Federal tax purposes), that owns all the stock of
Corporation Y. Under the partnership agreement, Corporation W has a 50%
distributive share of the partnership's income, gain, loss, deductions,
and credits. These allocations comply with section 704(b) and its
regulations. Individual F is a partner of Partnership X. In 2027,
Individual F performs services for the partnership, and the partnership
pays $1,000,000 to Individual F as a guaranteed payment for these
services. With respect to the $1,000,000 paid to Individual F, a
deduction of $500,000 is allocated to Corporation W. Corporation W's
$500,000 distributive share of the partnership's deduction is reported
separately to Corporation W pursuant to Sec. 1.702-1(a)(8)(iii).
Individual F is also an employee (within the meaning of section
3401(c)) of Corporation Y. In Corporation W's 2027 taxable year, it
pays $8,000,000 to Corporation Y in exchange for Individual F's
services. The $8,000,000 is otherwise deductible for Corporation W's
2027 taxable year. Individual F performs substantially all Individual
F's services in 2027 for Corporation W.
(2) Conclusion. Pursuant to paragraph (c)(3)(iv) of this section,
Individual F is treated as an employee of Corporation W for purposes of
this section. The entire $8,000,000 paid to Corporation Y by
Corporation W in 2027 is compensation within the meaning of paragraph
(c)(3) of this section and is taken into account to determine whether
Individual F is one of the five highest compensated employees of
Corporation W for its 2027 taxable year. Because Corporation W's
$500,000 distributive share of the partnership's deduction is
attributable to the compensation paid by the partnership for services
performed by Individual F (who is treated as an employee of Corporation
W), the $500,000 is compensation within the meaning of paragraph
(c)(3)(ii) of this section. Accordingly, Corporation W's $500,000
distributive share of the partnership's deduction is aggregated with
Corporation W's deduction for $8,000,0000 paid to Corporation Y in
determining whether Individual F is a covered employee as one of the
five highest compensated employees of Corporation W for its 2027
taxable year. If, pursuant to paragraph (c)(2)(i)(D) of this section,
Individual F is a covered employee of Corporation W, then Corporation
W's deduction for $8,500,000 for its 2027 taxable year is subject to
the section 162(m)(1) limit.
[[Page 4699]]
Because a publicly held corporation includes an affiliated group for
purposes of paragraph (c)(3) of this section, the result would be the
same even if there were an intermediary privately held subsidiary
between Corporation W and Partnership X (so that, instead of
Corporation W, an intermediary subsidiary was a partner in Partnership
X), as long as Corporation W and the intermediary subsidiary comprised
an affiliated group, and as long as Individual F performed
substantially all Individual F's services for the intermediary
subsidiary. Furthermore, the result would also be the same if
Individual F performed substantially all Individual F's services for
both Corporation W and the intermediary subsidiary (regardless of
whether Corporation W or the intermediary subsidiary paid the
$8,000,000 to Corporation Y). In such case, pursuant to paragraph
(c)(1)(ii) of this section, the amount disallowed as a deduction would
be prorated between Corporation W and the intermediary subsidiary.
* * * * *
(h) * * *
(2) * * *
(ii) * * *
(C) Definition of compensation. The definition of compensation
provided in paragraph (c)(3)(ii) of this section (relating to
distributive share of partnership deductions for compensation paid)
applies to any deduction for compensation that is paid after December
18, 2020. The definition of compensation in paragraph (c)(3)(ii) of
this section does not apply to compensation paid pursuant to a written
binding contract that is in effect on December 20, 2019, and that is
not materially modified after that date. For purposes of paragraph
(h)(2)(C) of this section, written binding contract and material
modification have the same meanings as provided in paragraphs (g)(1)
and (2) of this section. The definition of compensation provided in
paragraphs (c)(3)(iii) and (iv) of this section and the examples in
paragraphs (c)(3)(vi)(D) and (E) of this section apply to any deduction
for compensation that is otherwise deductible for taxable years
beginning after the later of December 31, 2026, or the date of
publication of the Treasury decision adopting these rules as final
regulations in the Federal Register.
* * * * *
(F) Five highest compensated employees. Paragraph (c)(2)(i)(D) of
this section (describing the five highest compensated employees of a
publicly held corporation) and the examples in paragraphs
(c)(2)(vii)(CC) through (EE) of this section apply to taxable years
beginning after the later of December 31, 2026, or the date of
publication of the Treasury decision adopting these rules as final
regulations in the Federal Register.
(G) Amendment to paragraph (c)(1)(vi)(W)(2) of this section. The
amendment to paragraph (c)(1)(vi)(W)(2) of this section (Example 23) to
reference paragraph (c)(1)(vi)(T) of this section (Example 20) is
proposed to apply to taxable years ending on or after January 16, 2025.
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2025-00728 Filed 1-14-25; 8:45 am]
BILLING CODE 4830-01-P
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