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In regard to our recent Client Alert "Performance-Based Uncertainty Under IRC Section 162(m)", the Internal Revenue Service has now provided a grandfathering rule, under IRS Revenue Ruling 2008-13. The good news is that under the new grandfathering rule, the Section 162(m) deduction will not be disallowed where (1) the applicable performance period for the compensation begins on or before January 1, 2009, or (2) the compensation is paid per the terms of an employment agreement in effect on February 21, 2008 (but without regard to future renewals or extensions thereof). Although the IRS' new grandfathering rule will need to be taken into consideration in the near future, care should be taken to preserve protection under the February 21, 2008 grandfathering date when amending existing employment contracts this year to bring them into compliance with IRC Section 409A by the December 31, 2008 deadline, as such amendments may impact the right to performance-based compensation (such as a revision of a "good reason" provision to comply with the Section 409A safe harbor).
This alert is a publication of Loeb & Loeb LLP and is intended to provide information on recent legal developments. This alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations. For more information on the content of this alert, please contact Marla Aspinwall.
Circular 230 Disclosure: To ensure compliance with Treasury Department rules governing tax practice, we inform you that any advice contained herein (including any attachments) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer; and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.