80 FR 16970 - Certain Employee Remuneration in Excess of $1,000,000 Under Internal Revenue Code Section 162(m)
DEPARTMENT OF THE TREASURY
Internal Revenue Service Federal Register Volume 80, Issue 61 (March 31, 2015)
Internal Revenue Service
Federal Register Volume 80, Issue 61 (March 31, 2015)
| Page Range | 16970-16973 | |
| FR Document | 2015-07386 |
[Federal Register Volume 80, Number 61 (Tuesday, March 31, 2015)] [Rules and Regulations] [Pages 16970-16973] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-07386] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9716 ] RIN 1545-BI65 Certain Employee Remuneration in Excess of $1,000,000 Under Internal Revenue Code Section 162(m) AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final regulations relating to the deduction limitation for certain employee remuneration in excess of $1,000,000 under the Internal Revenue Code (Code). These regulations affect publicly held corporations. DATES: Effective date: These regulations are effective on April 1, 2015. Applicability date: For dates of applicability, see Sec. 1.162- 27(j)(2)(vi). [[Page 16971]] FOR FURTHER INFORMATION CONTACT: Ilya Enkishev at (202) 317-5600 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background On June 24, 2011, the Treasury Department and the IRS published a notice of proposed rulemaking (proposed regulations) in the Federal Register (76 FR 37034, corrected by 76 FR 55321 on September 7, 2011) under section 162(m) of the Internal Revenue Code (Code). The proposed regulations clarified Sec. 1.162-27(e)(2)(vi)(A) by providing that the plan under which an option or stock appreciation right is granted must specify the maximum number of shares with respect to which options or rights may be granted to any individual employee during a specified period. The proposed regulations also clarified that the general transition rule under Sec. 1.162-27(f)(1) for a corporation that becomes a publicly held corporation applies to all compensation other than compensation specifically identified in Sec. 1.162-27(f)(3). The Treasury Department and the IRS received written comments in response to the proposed regulations. All comments were considered and are available for public inspection at http://www.regulations.gov or upon request. No public hearing on the proposed regulations was requested or held. After consideration of the comments received, the Treasury Department and the IRS adopt the proposed regulations, with modifications, as final regulations. Summary of Comments and Explanation of Provisions 1. Maximum Number of Shares With Respect To Which Options or Rights May Be Granted to Each Individual Employee Section 162(m)(1) precludes a deduction under chapter 1 of the Code by any publicly held corporation for compensation paid to any covered employee to the extent that the compensation for the taxable year exceeds $1,000,000. Section 162(m)(4)(C) provides that the deduction limitation does not apply to qualified performance-based compensation. Section 1.162-27(e)(1) provides that qualified performance-based compensation is compensation that meets all of the requirements of Sec. 1.162-27(e)(2) through (e)(5). The proposed regulations clarified Sec. 1.162-27(e)(2)(vi)(A) by providing that the plan under which an option or stock appreciation right is granted must state ``the maximum number of shares with respect to which options or rights may be granted during a specified period to any individual [emphasis added] employee'' (per-employee limitation requirement). The existing regulations provide that the per-employee limitation applies to ``any employee'' during a specified period. The proposed regulations also provided a corresponding clarification of the shareholder approval requirement under Sec. 1.162-27(e)(4). Specifically, the proposed regulations clarified Sec. 1.162- 27(e)(4)(iv) to provide that compensation is not adequately described for purposes of the shareholder approval requirement unless the maximum number of shares on which grants may be made to any individual employee during a specified period and the exercise price of those options is disclosed to the shareholders of the corporation. The proposed regulations provided that the clarifications to Sec. 1.162- 27(e)(2)(vi)(A) and (e)(4)(iv) apply to amounts that are otherwise deductible for taxable years ending on or after June 24, 2011. Commenters suggested that these final regulations clarify that under Sec. 1.162-27(e)(2)(vi)(A) a plan satisfies the per-employee limitation requirement if the plan specifies the maximum number of shares with respect to which any type of equity-based compensation may be granted to any individual employee during a specified period. Commenters explained that clarification is needed on whether the per- employee limitation may apply to all types of equity-based awards, not merely stock options and stock appreciation rights, which are the two types of equity-based awards described in Sec. 1.162-27(e)(2)(vi)(A). In addition, commenters noted that a per-employee limitation on all types of equity-based awards would have the same effect as a per- employee limitation with respect to stock options and stock appreciation rights. In response to these comments, the final regulations modify Sec. 1.162-27(e)(2)(vi)(A) to provide that a plan satisfies the per-employee limitation requirement if the plan specifies an aggregate maximum number of shares with respect to which stock options, stock appreciation rights, restricted stock, restricted stock units and other equity-based awards may be granted to any individual employee during a specified period under a plan approved by shareholders in accordance with Sec. 1.162-27(e)(4). This clarification is not intended as a substantive change. One commenter suggested that the clarification to Sec. 1.162- 27(e)(2)(vi)(A) apply only to compensation attributable to stock options and stock appreciation rights granted under a plan that was submitted for shareholder approval after August 8, 2011 (that is, forty-five days after the publication of the proposed regulations) and not to grants under plans submitted for shareholder approval before August 9, 2011 (even if the grant was made after that date). Another commenter suggested that the clarification apply only after the first shareholder meeting that occurs at least 12 months after the publication of these final regulations. These commenters reasoned that a transition period is appropriate because a plan providing for an aggregate share limit (but not an explicit per-employee share limitation) arguably satisfies the per-employee limitation requirement under the existing regulations because no individual employee may receive shares in excess of the aggregate limit. These final regulations do not adopt either of these suggestions. The clarification to Sec. 1.162-27(e)(2)(vi)(A) is not a substantive change. The transition rule in Sec. 1.162-27(h)(3)(i) of the regulations provides that a plan providing for an aggregate limit, but not a per-employee limit, satisfies Sec. 1.162-27(e)(2)(vi)(A) only if the plan was approved by shareholders before December 20, 1993, and only during a limited reliance period specified in Sec. 1.162- 27(h)(3)(i). Additionally, the legislative history to section 162(m) and the preamble to the 1993 Treasury Regulations (58 FR 66310) under section 162(m) provide for a limit on the maximum number of shares for which options or stock appreciation rights may be granted to individual employees. The preamble to the 1993 Treasury Regulations explains the reason for requiring a per-employee limitation: ``Some have questioned why it would be necessary for the regulations to require an individual [emphasis added] employee limit on the number of the shares for which options or stock appreciation rights may be granted, where shareholder approval of an aggregate limit is obtained for securities law purposes. The regulations follow the legislative history, which suggests that a per-employee limit be required under the terms of the plan.'' The preamble further explains that ``a limit on the maximum number of shares for which individual employees may receive options or other rights is appropriate because it is consistent with the broader requirement that a performance goal include an objective formula for determining the maximum amount of compensation that an individual employee could receive.'' Accordingly, these final regulations provide that the clarification to Sec. 1.162-27(e)(2)(vi)(A) applies to compensation [[Page 16972]] attributable to stock options and stock appreciation rights that are granted on or after June 24, 2011 (the date of publication of the proposed regulations). 2. Compensation Payable Under Restricted Stock Units Paid by Companies That Become Publicly Held In general, Sec. 1.162-27(f)(1) provides that when a corporation becomes publicly held, the section 162(m) deduction limitation ``does not apply to any remuneration paid pursuant to a compensation plan or agreement that existed during the period in which the corporation was not publicly held.'' Pursuant to Sec. 1.162-27(f)(2), a corporation may rely on Sec. 1.162-27(f)(1) until the earliest of: (i) The expiration of the plan or agreement; (ii) a material modification of the plan or agreement; (iii) the issuance of all employer stock and other compensation that has been allocated under the plan or agreement; or (iv) the first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which an initial public offering (IPO) occurs or, in the case of a privately held corporation that becomes publicly held without an IPO, the first calendar year following the calendar year in which the corporation becomes publicly held. Section 1.162-27(f)(3) provides that the relief provided under Sec. 1.162- 27(f)(1) applies to any compensation received pursuant to the exercise of a stock option or stock appreciation right, or the substantial vesting of restricted property, granted under a plan or agreement described in Sec. 1.162-27(f)(1) if the grant occurs on or before the earliest of the events specified in Sec. 1.162-27(f)(2). The proposed regulations clarified that the transition rule in Sec. 1.162-27(f)(1) applies to all compensation other than compensation specifically identified in Sec. 1.162-27(f)(3). Specifically, the proposed regulations identified compensation payable under a restricted stock unit arrangement (RSU) or a phantom stock arrangement as being ineligible for the transition relief in Sec. 1.162-27(f)(3). Therefore, the effect of the proposed regulations is that compensation payable under a RSU is eligible for transition relief only if it is paid, and not merely granted, before the earliest of the events specified in Sec. 1.162-27(f)(2). Commenters suggested that compensation payable under a RSU should qualify for the transition relief in Sec. 1.162-27(f)(3) because a RSU is economically similar to restricted stock. These final regulations do not adopt this suggestion. A RSU provides a right to receive an amount of compensation based on the value of stock that is payable in cash, stock, or other property (as defined in Sec. 1.83-3(e)) upon the satisfaction of a vesting condition (such as a period of service). Restricted stock, by contrast, is property that has been transferred to the service provider on the date of grant subject to the satisfaction of a specified vesting condition. Restricted stock and RSU's are treated differently under the Code. RSU's generally are treated as nonqualified deferred compensation and may be subject to the rules under section 409A, whereas restricted stock is treated as property and is governed by the rules under section 83. Because compensation attributable to a RSU is in the nature of nonqualified deferred compensation (unlike restricted stock), compensation attributable to a RSU is not sufficiently similar to restricted property to receive the transition relief provided under Sec. 1.162-27(f)(3). Accordingly, these final regulations adopt the proposed clarification to Sec. 1.162-27(f)(3) without change. The proposed regulations provided that the clarification to Sec. 1.162-27(f)(3) would apply on or after the date of publication of the Treasury decision adopting the proposed regulations as final regulations. Commenters suggested that the clarification to Sec. 1.162-27(f)(3) should apply to RSU's granted after the publication of final regulations and not merely to remuneration payable under a RSU after the date of publication. These final regulations adopt this suggestion. Accordingly, these final regulations provide that the clarification to Sec. 1.162-27(f)(3) applies to remuneration otherwise deductible under a RSU that is granted on or after April 1, 2015. Proposed Effective/Applicability Date The clarifications to paragraphs (e)(2)(vi)(A), (e)(2)(vii) Example 9, and (e)(4)(iv) of this section apply to compensation attributable to stock options and stock appreciation rights that are granted on or after June 24, 2011. The clarification to Sec. 1.162-27(f)(3) applies to any remuneration that is otherwise deductible resulting from a stock option, stock appreciation right, restricted stock (or other property), restricted stock unit, or any other form of equity-based remuneration that is granted on or after April 1, 2015. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Drafting Information The principal author of these final regulations is Ilya Enkishev, Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended 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. In Sec. 1.162-27 paragraphs (e)(2)(vi)(A), (e)(2)(vii) Example 9, (e)(4)(iv), and (f)(3) are revised and paragraph (j)(2)(vi) is added to read as follows: Sec. 1.162-27 Certain employee remuneration in excess of $1,000,000. * * * * * (e) * * * (2) * * * (vi) * * * (A) In general. Compensation attributable to a stock option or a stock appreciation right is deemed to satisfy the requirements of this paragraph (e)(2) if the grant or award is made by the compensation committee; the plan under which the option or right is granted states the maximum number of shares with respect to which options or rights may be granted during a specified period to any individual employee; and, under the terms of the option or right, the amount of compensation the employee may receive is based solely on an increase in the value of the stock [[Page 16973]] after the date of the grant or award. A plan may satisfy the requirement to provide a maximum number of shares with respect to which stock options and stock appreciation rights may be granted to any individual employee during a specified period if the plan specifies an aggregate maximum number of shares with respect to which stock options, stock appreciation rights, restricted stock, restricted stock units and other equity-based awards that may be granted to any individual employee during a specified period under a plan approved by shareholders in accordance with Sec. 1.162-27(e)(4). If the amount of compensation the employee may receive under the grant or award is not based solely on an increase in the value of the stock after the date of grant or award (for example, in the case of restricted stock, or an option that is granted with an exercise price that is less than the fair market value of the stock as of the date of grant), none of the compensation attributable to the grant or award is qualified performance-based compensation under this paragraph (e)(2)(vi)(A). Whether a stock option grant is based solely on an increase in the value of the stock after the date of grant is determined without regard to any dividend equivalent that may be payable, provided that payment of the dividend equivalent is not made contingent on the exercise of the option. The rule that the compensation attributable to a stock option or stock appreciation right must be based solely on an increase in the value of the stock after the date of grant or award does not apply if the grant or award is made on account of, or if the vesting or exercisability of the grant or award is contingent on, the attainment of a performance goal that satisfies the requirements of this paragraph (e)(2). * * * * * (vii) * * * Example 9. Corporation V establishes a stock option plan for salaried employees. The terms of the stock option plan specify that no individual salaried employee shall receive options for more than 100,000 shares over any 3-year period. The compensation committee grants options for 50,000 shares to each of several salaried employees. The exercise price of each option is equal to or greater than the fair market value of a share of V stock at the time of each grant. Compensation attributable to the exercise of the options satisfies the requirements of paragraph (e)(2)(vi) of this section. If, however, the terms of the options provide that the exercise price is less than fair market value of a share of V stock at the date of grant, no compensation attributable to the exercise of those options satisfies the requirements of this paragraph (e)(2) unless issuance or exercise of the options was contingent upon the attainment of a preestablished performance goal that satisfies this paragraph (e)(2). If, however, the terms of the plan also provide that Corporation V could grant options to purchase no more than 900,000 shares over any 3-year period, but did not provide a limitation on the number of shares that any individual employee could purchase, then no compensation attributable to the exercise of those options satisfies the requirements of paragraph (e)(2)(vi) of this section. * * * * * (4) * * * (iv) Description of compensation. Disclosure as to the compensation payable under a performance goal must be specific enough so that shareholders can determine the maximum amount of compensation that could be paid to any individual employee during a specified period. If the terms of the performance goal do not provide for a maximum dollar amount, the disclosure must include the formula under which the compensation would be calculated. Thus, if compensation attributable to the exercise of stock options is equal to the difference between the exercise price and the current value of the stock, then disclosure of the maximum number of shares for which grants may be made to any individual employee during a specified period and the exercise price of those options (for example, fair market value on date of grant) would satisfy the requirements of this paragraph (e)(4)(iv). In that case, shareholders could calculate the maximum amount of compensation that would be attributable to the exercise of options on the basis of their assumptions as to the future stock price. * * * * * (f) * * * (3) Stock-based compensation. Paragraph (f)(1) of this section will apply to any compensation received pursuant to the exercise of a stock option or stock appreciation right, or the substantial vesting of restricted property, granted under a plan or agreement described in paragraph (f)(1) of this section if the grant occurs on or before the earliest of the events specified in paragraph (f)(2) of this section. This paragraph does not apply to any form of stock-based compensation other than the forms listed in the immediately preceding sentence. Thus, for example, compensation payable under a restricted stock unit arrangement or a phantom stock arrangement must be paid, rather than merely granted, on or before the occurrence of the earliest of the events specified in paragraph (f)(2) of this section in order for paragraph (f)(1) of this section to apply. * * * * * (j) * * * (2) * * * (vi) The modifications to paragraphs (e)(2)(vi)(A), (e)(2)(vii) Example 9, and (e)(4)(iv) of this section concerning the maximum number of shares with respect to which a stock option or stock appreciation right that may be granted and the amount of compensation that may be paid to any individual employee apply to compensation attributable to stock options and stock appreciation rights that are granted on or after June 24, 2011. The last two sentences of Sec. 1.162-27(f)(3) apply to remuneration that is otherwise deductible resulting from a stock option, stock appreciation right, restricted stock (or other property), restricted stock unit, or any other form of equity-based remuneration that is granted on or after April 1, 2015. Approved: March 9, 2015. John Dalrymple, Deputy Commissioner for Services and Enforcement. Mark D. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2015-07386 Filed 3-30-15; 8:45 am] BILLING CODE 4830-01-P
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Examples of actions that would until HUD has completed the Division at 202–708–3055 (not a toll free
normally be considered sufficient to environmental review and notified the number).
resolve the matter include, but are not requestor that the transfer to the
G. Information Collection Requirements
limited to, current compliance with: receiving property is acceptable.
a. A voluntary compliance agreement The information collection
(VCA) signed by all the parties; E. Post Approval Requirements requirements contained in this
b. A HUD-approved conciliation Once HUD has received and reviewed document have been approved by the
agreement signed by all the parties; the materials above and approved the Office of Management and Budget
c. A conciliation agreement signed by transfer under Section 214, the owner of (OMB) under the Paperwork Reduction
all the parties and approved by the state the receiving project must do the Act of 1995 (44 U.S.C. 3501–3520) and
governmental or local administrative following as applicable: assigned OMB Control Number 2502–
agency with jurisdiction over the matter; 1. If there is a use restriction at the 0608. In accordance with the Paperwork
d. A consent order or consent decree; transferring property, sign a new or Reduction Act, HUD may not conduct or
or amended use restriction that includes sponsor, and a person is not required to
e. A final judicial ruling or all income and eligibility restrictions of respond to, a collection of information
administrative ruling or decision. the transferring use restriction and runs unless the collection displays a
6. Documentation to assist HUD in an currently valid OMB control number.
for the duration of the transferring
environmental review of the transfer
project’s existing use restriction or the H. Implementation
request in accordance with
use restriction at the receiving project,
environmental regulations and This notice will become effective
whichever is longer.
requirements at 24 CFR part 50. HUD April 30, 2015. HUD will begin
will conduct the environmental review 2. If the transfer involves project
accepting requests for transfers pursuant
as required by part 50 prior to approving based section 8 assistance, renew the
to this notice on or after the effective
a transfer. HUD will document HAP contract for a 20-year term at the
date. For questions regarding the
compliance on Form HUD–4128, time of the transfer and attach the
submission or status of a transfer
‘‘Environmental Assessment and Preservation Exhibit agreeing to the
request, interested parties should
Compliance Findings for the Related automatic renewal of the Section 8 HAP
contact their HUD Multifamily Hub/
Laws.’’ Applicants are responsible for contract at the end of the 20-year term,
Program Center. The list of HUD
submitting environmental information subject to annual appropriations, for a
Multifamily Hubs and Program Centers
and reports, and should use Chapter 9 minimum of the time remaining on the
is available at: http://portal.hud.gov/
of the MAP Guide and the HUD HAP contract that was in effect prior to
hudportal/HUD?src=/program_offices/
Environmental Review Web site the transfer under Section 214.
housing/mfh/hsgmfbus/abouthubspcs.
(available at https://www.onecpd.info/ 3. Receive approval through the
Previous Participation Process including Dated: March 17, 2015.
environmental-review/) for guidance on
a 2530 review. The receiving owner Biniam Gebre,
environmental review information
requirements. If the transfer is to a site must be in compliance with all business Acting Assistant Secretary for Housing—
agreements for the receiving project and Federal Housing Commissioner.
that is currently HUD-assisted, HUD-
insured or HUD-held, a new Phase I for any other HUD insured or assisted [FR Doc. 2015–06776 Filed 3–30–15; 8:45 am]
Environmental Site Assessment (ESA) projects owned. BILLING CODE 4210–67–P
in accordance with ASTM E 1527–13 (or 4. Comply with all Departmental
the most recent edition), including a statutes, regulations, policies and
Vapor Encroachment Screen in procedures related to any assignment or DEPARTMENT OF THE TREASURY
accordance with ASTM E 2600–10 (or amendment of a Section 8 HAP contract
the most recent edition), is not required, or other project-based rental assistance Internal Revenue Service
unless the transfer involves: contract, required modification of loan
a. Significant ground disturbance documents and legal descriptions, or 26 CFR Part 1
(digging) or construction not other necessary changes as a result of a [TD 9716 ]
contemplated in the original application Section 214 transfer.
RIN 1545–BI65
or incompatible with current F. Environmental Review
engineering or institutional controls; Certain Employee Remuneration in
b. Site expansion or addition; A Finding of No Significant Impact
(FONSI) with respect to the Excess of $1,000,000 Under Internal
c. Transfer to a site for which a Phase
environment has been made for this Revenue Code Section 162(m)
I ESA in accordance with ASTM E
1527–05 (or a more recent edition) has notice in accordance with HUD AGENCY: Internal Revenue Service (IRS),
not been prepared previously; or regulations at 24 CFR part 50, which Treasury.
d. Any other activities which may implement section 102(2)(C) of the ACTION: Final regulations.
result in contaminant exposure National Environmental Policy Act of
pathways not contemplated in the 1969 (42 U.S.C. 4332(2)(C)). The FONSI SUMMARY: This document contains final
original application or incompatible is available for public inspection regulations relating to the deduction
with current engineering or institutional between 8 a.m. and 5 p.m. weekdays in limitation for certain employee
controls. the Regulations Division, Office of remuneration in excess of $1,000,000
asabaliauskas on DSK5VPTVN1PROD with RULES
After a request has been submitted to General Counsel, Department of under the Internal Revenue Code
HUD, the requestor and other Housing and Urban Development, 451 (Code). These regulations affect publicly
participants in the proposed transfer, 7th Street SW., Room 10276, held corporations.
including owners and contractors on the Washington, DC 20410–0500. Due to DATES:
receiving project, may not undertake or security measures at this HUD Effective date: These regulations are
commit funds for acquisition, Headquarters Building, an advance effective on April 1, 2015.
rehabilitation, conversion, or appointment to review the FONSI must Applicability date: For dates of
construction of the receiving property be scheduled by calling the Regulations applicability, see § 1.162–27(j)(2)(vi).
VerDate Sep<11>2014 18:26 Mar 30, 2015 Jkt 235001 PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 E:\FR\FM\31MRR1.SGM 31MRR1](https://thefederalregister.org/doc/80_FR_17031/page/1.svg)
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FOR FURTHER INFORMATION CONTACT: Ilya be granted during a specified period to August 8, 2011 (that is, forty-five days
Enkishev at (202) 317–5600 (not a toll- any individual [emphasis added] after the publication of the proposed
free number). employee’’ (per-employee limitation regulations) and not to grants under
SUPPLEMENTARY INFORMATION: requirement). The existing regulations plans submitted for shareholder
provide that the per-employee approval before August 9, 2011 (even if
Background limitation applies to ‘‘any employee’’ the grant was made after that date).
On June 24, 2011, the Treasury during a specified period. The proposed Another commenter suggested that the
Department and the IRS published a regulations also provided a clarification apply only after the first
notice of proposed rulemaking corresponding clarification of the shareholder meeting that occurs at least
(proposed regulations) in the Federal shareholder approval requirement under 12 months after the publication of these
Register (76 FR 37034, corrected by 76 § 1.162–27(e)(4). Specifically, the final regulations. These commenters
FR 55321 on September 7, 2011) under proposed regulations clarified § 1.162– reasoned that a transition period is
section 162(m) of the Internal Revenue 27(e)(4)(iv) to provide that appropriate because a plan providing for
Code (Code). The proposed regulations compensation is not adequately an aggregate share limit (but not an
clarified § 1.162–27(e)(2)(vi)(A) by described for purposes of the explicit per-employee share limitation)
providing that the plan under which an shareholder approval requirement arguably satisfies the per-employee
option or stock appreciation right is unless the maximum number of shares limitation requirement under the
granted must specify the maximum on which grants may be made to any existing regulations because no
number of shares with respect to which individual employee during a specified individual employee may receive shares
options or rights may be granted to any period and the exercise price of those in excess of the aggregate limit.
individual employee during a specified options is disclosed to the shareholders These final regulations do not adopt
period. The proposed regulations also of the corporation. The proposed either of these suggestions. The
clarified that the general transition rule regulations provided that the clarification to § 1.162–27(e)(2)(vi)(A) is
under § 1.162–27(f)(1) for a corporation clarifications to § 1.162–27(e)(2)(vi)(A) not a substantive change. The transition
that becomes a publicly held and (e)(4)(iv) apply to amounts that are rule in § 1.162–27(h)(3)(i) of the
corporation applies to all compensation otherwise deductible for taxable years regulations provides that a plan
other than compensation specifically ending on or after June 24, 2011.
providing for an aggregate limit, but not
identified in § 1.162–27(f)(3). Commenters suggested that these final
a per-employee limit, satisfies § 1.162–
The Treasury Department and the IRS regulations clarify that under § 1.162–
27(e)(2)(vi)(A) a plan satisfies the per- 27(e)(2)(vi)(A) only if the plan was
received written comments in response approved by shareholders before
to the proposed regulations. All employee limitation requirement if the
plan specifies the maximum number of December 20, 1993, and only during a
comments were considered and are limited reliance period specified in
available for public inspection at http:// shares with respect to which any type
of equity-based compensation may be § 1.162–27(h)(3)(i). Additionally, the
www.regulations.gov or upon request. legislative history to section 162(m) and
No public hearing on the proposed granted to any individual employee
during a specified period. Commenters the preamble to the 1993 Treasury
regulations was requested or held. After Regulations (58 FR 66310) under section
consideration of the comments received, explained that clarification is needed on
whether the per-employee limitation 162(m) provide for a limit on the
the Treasury Department and the IRS maximum number of shares for which
adopt the proposed regulations, with may apply to all types of equity-based
awards, not merely stock options and options or stock appreciation rights may
modifications, as final regulations. be granted to individual employees. The
stock appreciation rights, which are the
Summary of Comments and two types of equity-based awards preamble to the 1993 Treasury
Explanation of Provisions described in § 1.162–27(e)(2)(vi)(A). In Regulations explains the reason for
addition, commenters noted that a per- requiring a per-employee limitation:
1. Maximum Number of Shares With ‘‘Some have questioned why it would be
Respect To Which Options or Rights employee limitation on all types of
equity-based awards would have the necessary for the regulations to require
May Be Granted to Each Individual an individual [emphasis added]
same effect as a per-employee limitation
Employee employee limit on the number of the
with respect to stock options and stock
Section 162(m)(1) precludes a appreciation rights. In response to these shares for which options or stock
deduction under chapter 1 of the Code comments, the final regulations modify appreciation rights may be granted,
by any publicly held corporation for § 1.162–27(e)(2)(vi)(A) to provide that a where shareholder approval of an
compensation paid to any covered plan satisfies the per-employee aggregate limit is obtained for securities
employee to the extent that the limitation requirement if the plan law purposes. The regulations follow
compensation for the taxable year specifies an aggregate maximum number the legislative history, which suggests
exceeds $1,000,000. Section of shares with respect to which stock that a per-employee limit be required
162(m)(4)(C) provides that the options, stock appreciation rights, under the terms of the plan.’’ The
deduction limitation does not apply to restricted stock, restricted stock units preamble further explains that ‘‘a limit
qualified performance-based and other equity-based awards may be on the maximum number of shares for
compensation. Section 1.162–27(e)(1) granted to any individual employee which individual employees may
provides that qualified performance- during a specified period under a plan receive options or other rights is
based compensation is compensation approved by shareholders in accordance appropriate because it is consistent with
asabaliauskas on DSK5VPTVN1PROD with RULES
that meets all of the requirements of with § 1.162–27(e)(4). This clarification the broader requirement that a
§ 1.162–27(e)(2) through (e)(5). is not intended as a substantive change. performance goal include an objective
The proposed regulations clarified One commenter suggested that the formula for determining the maximum
§ 1.162–27(e)(2)(vi)(A) by providing that clarification to § 1.162–27(e)(2)(vi)(A) amount of compensation that an
the plan under which an option or stock apply only to compensation attributable individual employee could receive.’’
appreciation right is granted must state to stock options and stock appreciation Accordingly, these final regulations
‘‘the maximum number of shares with rights granted under a plan that was provide that the clarification to § 1.162–
respect to which options or rights may submitted for shareholder approval after 27(e)(2)(vi)(A) applies to compensation
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![Federal Register / Vol. 80, No. 61 / Tuesday, March 31, 2015 / Rules and Regulations 16973
after the date of the grant or award. A preestablished performance goal that satisfies (j) * * *
plan may satisfy the requirement to this paragraph (e)(2). If, however, the terms (2) * * *
provide a maximum number of shares of the plan also provide that Corporation V (vi) The modifications to paragraphs
with respect to which stock options and could grant options to purchase no more than (e)(2)(vi)(A), (e)(2)(vii) Example 9, and
900,000 shares over any 3-year period, but
stock appreciation rights may be granted did not provide a limitation on the number
(e)(4)(iv) of this section concerning the
to any individual employee during a of shares that any individual employee could maximum number of shares with
specified period if the plan specifies an purchase, then no compensation attributable respect to which a stock option or stock
aggregate maximum number of shares to the exercise of those options satisfies the appreciation right that may be granted
with respect to which stock options, requirements of paragraph (e)(2)(vi) of this and the amount of compensation that
stock appreciation rights, restricted section. may be paid to any individual employee
stock, restricted stock units and other * * * * * apply to compensation attributable to
equity-based awards that may be (4) * * * stock options and stock appreciation
granted to any individual employee (iv) Description of compensation. rights that are granted on or after June
during a specified period under a plan Disclosure as to the compensation 24, 2011. The last two sentences of
approved by shareholders in accordance payable under a performance goal must § 1.162–27(f)(3) apply to remuneration
with § 1.162–27(e)(4). If the amount of be specific enough so that shareholders that is otherwise deductible resulting
compensation the employee may receive can determine the maximum amount of from a stock option, stock appreciation
under the grant or award is not based compensation that could be paid to any right, restricted stock (or other
solely on an increase in the value of the individual employee during a specified property), restricted stock unit, or any
stock after the date of grant or award (for period. If the terms of the performance other form of equity-based remuneration
example, in the case of restricted stock, goal do not provide for a maximum that is granted on or after April 1, 2015.
or an option that is granted with an dollar amount, the disclosure must Approved: March 9, 2015.
exercise price that is less than the fair include the formula under which the
market value of the stock as of the date John Dalrymple,
compensation would be calculated.
of grant), none of the compensation Deputy Commissioner for Services and
Thus, if compensation attributable to
attributable to the grant or award is Enforcement.
the exercise of stock options is equal to
qualified performance-based Mark D. Mazur,
the difference between the exercise
compensation under this paragraph price and the current value of the stock, Assistant Secretary of the Treasury (Tax
(e)(2)(vi)(A). Whether a stock option Policy).
then disclosure of the maximum
grant is based solely on an increase in number of shares for which grants may [FR Doc. 2015–07386 Filed 3–30–15; 8:45 am]
the value of the stock after the date of be made to any individual employee BILLING CODE 4830–01–P
grant is determined without regard to during a specified period and the
any dividend equivalent that may be exercise price of those options (for
payable, provided that payment of the example, fair market value on date of DEPARTMENT OF THE TREASURY
dividend equivalent is not made grant) would satisfy the requirements of
contingent on the exercise of the option. Internal Revenue Service
this paragraph (e)(4)(iv). In that case,
The rule that the compensation shareholders could calculate the
attributable to a stock option or stock 26 CFR Part 301
maximum amount of compensation that
appreciation right must be based solely would be attributable to the exercise of [TD–9718]
on an increase in the value of the stock options on the basis of their
after the date of grant or award does not RIN 1545–BH37
assumptions as to the future stock price.
apply if the grant or award is made on * * * * * Period of Limitations on Assessment
account of, or if the vesting or (f) * * * for Listed Transactions Not Disclosed
exercisability of the grant or award is (3) Stock-based compensation. Under Section 6011
contingent on, the attainment of a Paragraph (f)(1) of this section will
performance goal that satisfies the apply to any compensation received AGENCY: Internal Revenue Service (IRS),
requirements of this paragraph (e)(2). pursuant to the exercise of a stock Treasury.
* * * * * option or stock appreciation right, or the ACTION: Final regulations.
(vii) * * * substantial vesting of restricted
Example 9. Corporation V establishes a property, granted under a plan or SUMMARY: This document contains final
stock option plan for salaried employees. The agreement described in paragraph (f)(1) regulations relating to the exception to
terms of the stock option plan specify that no the general three-year period of
individual salaried employee shall receive of this section if the grant occurs on or
options for more than 100,000 shares over before the earliest of the events limitations on assessment under section
any 3-year period. The compensation specified in paragraph (f)(2) of this 6501(c)(10) of the Internal Revenue
committee grants options for 50,000 shares to section. This paragraph does not apply Code (Code) for listed transactions that
each of several salaried employees. The to any form of stock-based a taxpayer failed to disclose as required
exercise price of each option is equal to or compensation other than the forms under section 6011. These final
greater than the fair market value of a share listed in the immediately preceding regulations affect taxpayers who fail to
of V stock at the time of each grant. disclose listed transactions in
Compensation attributable to the exercise of
sentence. Thus, for example,
compensation payable under a restricted accordance with section 6011.
the options satisfies the requirements of
asabaliauskas on DSK5VPTVN1PROD with RULES
paragraph (e)(2)(vi) of this section. If, stock unit arrangement or a phantom DATES:
however, the terms of the options provide stock arrangement must be paid, rather Effective date: These regulations are
that the exercise price is less than fair market than merely granted, on or before the effective March 31, 2015.
value of a share of V stock at the date of occurrence of the earliest of the events Applicability date: For dates of
grant, no compensation attributable to the specified in paragraph (f)(2) of this applicability, see § 301.6501(c)–1(g)(9).
exercise of those options satisfies the
requirements of this paragraph (e)(2) unless
section in order for paragraph (f)(1) of FOR FURTHER INFORMATION CONTACT:
issuance or exercise of the options was this section to apply. Danielle Pierce of the Office of Chief
contingent upon the attainment of a * * * * * Counsel (Procedure and
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Document Created: 2015-12-18 11:48:34
Document Modified: 2015-12-18 11:48:34
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final regulations. | |
| Contact | Ilya Enkishev at (202) 317-5600 (not a toll-free number). | |
| FR Citation | 80 FR 16970 | |
| RIN Number | 1545-BI65 | |
| CFR Associated | Income Taxes and Reporting and Recordkeeping Requirements |
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