Seção 162 (M) Opções De Estoque

Artigo 162 (m) Conformidade IRS Concentre-se na Seção 162 (m) Conformidade Seção Comum 162 (m) Violações Como Inadvertente Seção 162 (m) Violações Ocorrem Por Que Você Deve Designar uma Pessoa de Conformidade 162 (m) Seção 162 (m) Lista de Verificação de Conformidade Outro Seção 162 (m) Artigos de mídia de ponteiros de prática na seção 162 (m) Painel de webcast de vídeo: O foco do IRS na compensação executiva: o que significa para você Seção 162 (m) Área de prática de divulgação IRS Concentre-se na seção 162 (m) Conformidade a partir de No final de 2004, o IRS estava envolvendo um programa-piloto de auditoria de compensação executiva no qual encontrou as violações da seção 162 (m) surpreendentemente comuns entre as duas dúzias de empresas de grandes capitais que auditou. Como resultado, entendemos que o IRS visou 162 (m) não conformidade como uma área de foco para auditorias futuras. A seção 162 (m) não permite deduções de uma empresa pública por uma compensação superior a 1 milhão por ano para o seu CEO e seus próximos quatro funcionários mais bem pagos, a menos que a compensação atenda aos requisitos de remuneração baseada em quociente de remuneração pagos em planos aprovados pelo acionista. Os problemas comuns de conformidade de 162 (m) incluem: opções outorgadas ao abrigo de um plano aprovado por um accionista não distribuído por um sócio aprovado (ou unidades de estoque restritas), onde nem o prêmio nem a aquisição estão vinculados a critérios de desempenho objetivos e pré-estabelecidos pelo comitê de compensação Certificar por escrito antes do pagamento que as metas de desempenho foram satisfeitas ou a falha em estabelecer com tempo os objetivos de desempenho, por exemplo, não definido nos primeiros 90 dias de um período de desempenho de um ano. Leia mais em IRS Cracks Down on Corporate Deductions Tomado para Compensação Executiva no Excesso de 1 Milhão. Tim Sparks, presidente da Compensia, observa estas violações comuns da seção 162 (m): Opções concedidas ao abrigo de um plano aprovado por não-acionistas. Por exemplo, as opções podem ser concedidas a um novo funcionário sob um plano de quotinducement que não foi aprovado pelos acionistas. Opções concedidas de acordo com um plano em excesso do limite de concessão periódica (por exemplo, anual). Bônus ou outros pagamentos de incentivo (incluindo outorgas de opção) feitos sob um plano pré-IPO que não foi aprovado oportunamente (ou re-aprovado) conforme necessário após o IPO. Estoque restrito (ou unidades de ações restritas) ou outros prêmios de valor total, quando nem a concessão nem a aquisição estão vinculados a critérios de desempenho objetivos e pré-estabelecidos de acordo com um plano aprovado pelo acionista. Bônus ou outros pagamentos de incentivo efetuados de acordo com um plano que confere ao comitê de remuneração a autoridade para alterar as medidas de desempenho que não foram reafirmadas pelos acionistas no ou antes do quinto ano após o ano da aprovação anterior do acionista. A remuneração não baseada no desempenho excede 1 milhão por ano. Isso pode resultar em que o salário base dos funcionários é alto e (i) o plano de bônus não é baseado em quotperformance, (ii) há um evento de aquisição de ações restrita ou um pagamento sob uma compensação diferida ou um acordo de unidade de estoque restrito, ou (iii) Como resultado de benefícios significativos. O comitê de remuneração altera os objetivos de desempenho ou, de outra forma, exerce um critério inadmissível ao abrigo do plano. O comitê de compensação inclui alguém que não atende aos requisitos técnicos para ser um diretor de quotoutside. A autoridade discricionária (por exemplo, concessões de opção) é exercida além de um comitê de remuneração qualificado (por parte do conselho completo, por exemplo). A comissão de compensação não certifica por escrito antes do pagamento que as metas de desempenho foram satisfeitas. As metas de desempenho não são definidas o bastante antes, e. . Não definido nos primeiros 90 dias de um período de desempenho de um ano. Como ocorrem as contratações contrárias da seção 162 (m) Tim Sparks, presidente da Compensia, também observa que os Comitês de Remuneração podem não estar cientes de que certos elementos do programa de remuneração de executivos da sua empresa não são totalmente dedutíveis. Como resultado, os Comitês de Remuneração podem tomar decisões de compensação de executivos sem ter em conta o custo total dessas decisões. O artigo 162 (m) do Internal Revenue Code impõe um limite à dedução das compensações pagas aos altos executivos de empresas públicas. O limite não se aplica a compensações que se qualificam como baseadas no desempenho conforme definido na Seção 162 (m). Significativamente, o limite não se aplica à compensação atribuível à maioria das opções de compra de ações dos empregados. Em antecipação à seção 162 (m), que entrou em vigor em 1º de janeiro de 1994, a maioria das empresas revisou minuciosamente seus programas de remuneração para avaliar o impacto da seção 162 (m). Muitas empresas concluíram que o limite não se aplicava a eles, uma vez que seu pagamento executivo consistia em uma compensação em dinheiro que estava abaixo do limite e das opções de compra de ações. Outras empresas tomaram medidas para mitigar o impacto da Seção 162 (m), entre outras coisas, estruturando programas de compensação para se qualificarem como baseados no desempenho. Desde 1994, a compensação de caixa em empresas públicas aumentou significativamente e muitas empresas começaram a expandir seus programas de incentivo de longo prazo para além das opções de ações tradicionais. Além disso, os programas de compensação inicialmente estruturados para se qualificarem como baseados em desempenho podem não mais se qualificar. Como resultado, as empresas podem pagar uma remuneração não dedutível nos termos da Seção 162 (m). Comitês de compensação podem não estar cientes desse custo adicional. Pior ainda, as empresas podem tomar deduções fiscais em violação da seção 162 (m). Existem vários padrões comuns que podem levar à inadimplência inadvertida de acordo com a Seção 162 (m). O aumento da compensação em dinheiro nos últimos 10 anos pode resultar em uma compensação que excede o limite de dedução de 1.000.000 por ano. Ou, empresas com planos de bônus vinculados a métricas de desempenho objetivo e financeiro podem acreditar erroneamente que o plano atende aos requisitos técnicos da Seção 162 (m). Outras empresas que classificaram seus planos de bônus quando a seção 162 (m) entraram em vigor podem ter perdido essa qualificação ao não renovar a aprovação dos acionistas do plano. Ou de outra forma violar os requisitos da Seção 162 (m). Isso pode acontecer, por exemplo, quando o plano dá ao Comitê de Remuneração ampla margem para escolher as métricas financeiras a serem usadas na determinação de pagamentos de bônus. De acordo com os regulamentos da Seção 162 (m), esse plano deve ser reafectado pelos acionistas de cinco em cinco anos. A qualificação também pode ser perdida se um plano tiver sido modificado materialmente sem a aprovação dos acionistas. As empresas que começaram a conceder ações de valor total (ações restritas, unidades de estoque restritas) também podem descobrir que a dedução fiscal associada a essas concessões é limitada. A menos que a concessão ou a concessão desses prêmios cumpra os requisitos técnicos de desempenho com base na seção 162 (m), tais valores estarão sujeitos ao limite de dedução. Isso pode ocorrer, por exemplo, onde a empresa concede estoque restrito que se baseia no emprego continuado, mesmo que a concessão inclua uma aquisição acelerada vinculada ao desempenho. Os Comitês de Remuneração precisam entender as conseqüências da Seção 162 (m) de cada elemento do programa de pagamento executivo da empresa para entender completamente o custo verdadeiro dos programas. Além disso, os Comitês devem garantir que a política da empresa em relação à Seção 162 (m), conforme refletido no proxy, atende com precisão e minoria cada elemento do programa de remuneração executiva da companys. Finalmente, como parte de seus controles internos, as empresas devem incluir um exame da dedutibilidade fiscal nos termos da seção 162 (m). Por que você deve designar uma pessoa de conformidade de 162 (m) Muitas empresas fazem faltas técnicas na tentativa de qualificar a compensação como baseada no desempenho, de acordo com a Seção 162 (m) do Código da Receita Federal, o limite de dedução de compensação de 1 milhão de executivos. O Internal Revenue Service completou recentemente uma auditoria de compensação de executivos de 24 empresas públicas. Como resultado, o IRS aparentemente decidiu que o desconhecimento de 162 (m) é um problema significativo e o visou como uma área de foco para futuras auditorias. A falta de conformidade pode surgir de várias maneiras, incluindo: Às vezes, a empresa não entende que os subsídios executivos devem ser feitos por uma comissão de compensação composta por diretores externos e não o conselho inteiro. Às vezes, a composição do Comitê de Remuneração é falho, Como quando um ex-funcionário da Companhia é um membro Às vezes, os subsídios podem ser feitos em excesso dos limites do plano. Às vezes, os requisitos para a aprovação contínua dos acionistas, como quando a exceção de privado para público expiram, não são devidamente observados. Às vezes, imputaram a renda de perigo Pode gerar uma remuneração total baseada em não-desempenho ao longo de 1 milhão. Às vezes, o gerenciamento não gosta da inflexibilidade de um plano de bônus somente de discrição negativa e o plano é modificado sem consultar os documentos do plano ou considerando adequadamente as 162 (m) conseqüências e às vezes o requisito Para a certificação por escrito antes do pagamento não é observado. Uma vez que a compensação qualificada como baseada no desempenho é técnica e requer uma atenção aos detalhes, as empresas devem considerar seriamente a nomeação de um empregado com responsabilidade total por entender e monitorar a conformidade de 162 (m). Isso pode ser alguém no departamento jurídico da empresa. Além disso, a pessoa designada deve ter a autoridade necessária para desempenhar adequadamente suas novas funções, incluindo a capacidade de comparecer nas reuniões do comitê de remuneração, nas quais 162 (m) estão sendo conduzidos. Idealmente, o Comitê de Remuneração também nomearia pelo menos um membro com responsabilidade pelo cumprimento de 162 (m), que coordenaria com a pessoa responsável pela conformidade da empresa (162). Também é uma boa idéia agendar algum tempo na agenda dos Comitês de Compensação a cada dois anos para uma atualização de apresentação em 162 (m) e os requisitos para qualificar a compensação com base no desempenho. Artigos de mídia sobre a seção 162 (m) quotAs CEOs Miss Goals, Goalposts Moves, por Jesse Drucker, Wall Street Journal (7 7 04) (disponível para compra) quotIRS Expanding Audits of Corporate Executives Tax Returns, Mary Dalrymple, Detroit News (AP ) (4 10 04) quot Práticas de compensação efetivas em grandes empresas Auditado pelo IRS, por MorningJournal (AP) (12 5 03) Painel de webcast de vídeo: O foco do IRS na compensação executiva: o que significa para você O que as áreas de problema de compensação do IRS agora é Visando como os comitês de compensação podem garantir que esses problemas não existam para eles O que os comitês de compensação de ações podem tomar para evitar violações da seção 162 (m )26 CFR 1.162-27 - Certas remunerações dos funcionários superiores a 1.000.000. Beta O texto na guia eCFR representa o texto não oficial do eCFR no ecfr. gov. XA7 1.162-27 Certas remunerações dos funcionários em excesso de 1.000.000. (A) Escopo. Esta seção fornece regras para a aplicação do limite de dedução de 1 milhão previsto na seção 162 (m) do Código da Receita Federal. O parágrafo (b) desta seção fornece a regra geral que limita as deduções nos termos da seção 162 (m). O parágrafo (c) desta seção fornece definições de termos geralmente aplicáveis. O parágrafo (d) desta seção fornece uma exceção do limite de dedução para compensação a pagar por comissão. O parágrafo (e) desta seção fornece uma exceção para compensação qualificada baseada em desempenho. Os parágrafos (f) e (g) desta seção fornecem regras especiais para empresas que se tornam empresas de capital aberto e pagamentos que estão sujeitos à seção 280G, respectivamente. O parágrafo (h) desta seção fornece regras de transição, incluindo as regras para os contratos que são de direito adquirido e não estão sujeitas à seção 162 (m). O parágrafo (j) desta seção contém as disposições de vigência da data. Para as regras relativas à dedutibilidade da compensação por serviços que não são abrangidos pela seção 162 (m) e nesta seção, veja a seção 162 (a) (1) e xA7 1.162-7. Esta seção não é determinante para saber se a compensação atende aos requisitos da seção 162 (a) (1). (B) Limitação na dedução. A seção 162 (m) impede uma dedução ao abrigo do capítulo 1 do Código da Receita Federal por qualquer companhia aberta por compensação paga a qualquer empregado coberto, na medida em que a remuneração do exercício tributável exceda 1.000.000. (1) Corporação de propriedade pública - (i) Regra geral. Uma corporação de capital aberto significa qualquer corporação que emita qualquer classe de títulos de capital comum exigidos para serem registrados de acordo com a seção 12 da Lei de Câmbio. Uma corporação não é considerada pública se o registro de seus títulos de capital for voluntário. Para os fins desta seção, se uma corporação é detida publicamente é determinada com base em apenas se, a partir do último dia do seu ano fiscal, a corporação está sujeita às obrigações de relatório da seção 12 do Exchange Act. (Ii) Grupos afiliados. Uma empresa de capital aberto inclui um grupo de empresas afiliadas, conforme definido na seção 1504 (determinado sem consideração a seção 1504 (b)). Para os propósitos desta seção, no entanto, um grupo de empresas afiliadas não inclui nenhuma subsidiária que seja ela própria uma corporação de capital aberto. Essa subsidiária pública e suas subsidiárias (se houver) estão sujeitas separadamente a esta seção. Se um empregado coberto for remunerado em um ano tributável por mais de um membro de um grupo afiliado, a remuneração paga por cada membro do grupo afiliado é agregada com compensação paga ao empregado coberto por todos os outros membros do grupo. Qualquer quantia não permitida como dedução nesta seção deve ser rateada entre as empresas pagadoras na proporção do montante da compensação paga ao empregado coberto por cada uma dessas corporações no ano tributável. (2) Funcionário coberto - (i) Regra geral. Um empregado coberto significa qualquer pessoa que, no último dia do ano tributável, seja - (A) O diretor executivo da corporação ou esteja agindo em tal capacidade ou (B) Entre os quatro maiores agentes compensados ​​(exceto o chefe Oficial executivo). (Ii) Aplicação das regras da Securities and Exchange Commission. Se um indivíduo é o diretor executivo descrito no parágrafo (c) (2) (i) (A) desta seção ou um oficial descrito no parágrafo (c) (2) (i) (B) desta seção é determinado de acordo com Às regras de divulgação de compensação de executivos ao abrigo do Exchange Act. (I) Em geral. Para fins da limitação de dedução descrita no parágrafo (b) desta seção, a compensação significa o valor total permitido como dedução ao abrigo do capítulo 1 do Código da Receita Federal para o ano fiscal (determinado sem consideração a seção 162 (m)) por remuneração Para os serviços prestados por um empregado coberto, independentemente de os serviços serem ou não realizados durante o ano tributável. (Ii) Exceções. A remuneração não inclui - (A) Remuneração abrangida na seção 3121 (a) (5) (A) através da seção 3121 (a) (5) (D) (referente a remuneração que não é tratada como salário para fins das Contribuições de Seguro Federal Ato) e (B) Remuneração consistente em qualquer benefício prestado ou em nome de um empregado se, no momento em que o benefício é prestado, é razoável acreditar que o empregado poderá excluí-lo da renda bruta. Além disso, a compensação não inclui contribuições para redução de salários descritas na seção 3121 (v) (1). (4) Comitê de Remuneração. A comissão de compensação significa o comitê de diretores (incluindo qualquer subcomitê de diretores) da corporação pública que tem autoridade para estabelecer e administrar os objetivos de desempenho descritos no parágrafo (e) (2) desta seção e certificar que os objetivos de desempenho são Alcançado, conforme descrito no parágrafo (e) (5) desta seção. Um comitê de diretores não é tratado como não ter autoridade para estabelecer metas de desempenho apenas porque os objetivos são ratificados pelo conselho de administração da corporação pública ou, se for caso disso, por qualquer outro comitê do conselho de administração. Veja o parágrafo (e) (3) desta seção para as regras relativas à composição do comitê de compensação. (5) Exchange Act. O Exchange Act significa o Securities Exchange Act de 1934. (6) Exemplos. Este parágrafo (c) pode ser ilustrado pelos seguintes exemplos: Corporação X é uma empresa de capital aberto com um 1 de julho a 30 de junho do ano fiscal. Para o ano tributável da Corporação Xs que termina em 30 de junho de 1995, a Corporação X paga uma remuneração de 2.000.000 para A, um empregado. No entanto, como uma compensação não é obrigada a ser reportada aos acionistas de acordo com as regras de divulgação de compensação de executivos da Lei de Câmbio, porque A não é o diretor executivo nem um dos quatro maiores funcionários remunerados empregados no último dia do ano tributável. Como compensação não está sujeita à limitação de dedução do parágrafo (b) desta seção. C, um funcionário coberto, desempenha serviços e recebe uma remuneração das Corporações X, Y e Z, membros de um grupo de empresas afiliadas. A Corporação X, a empresa-mãe, é uma empresa de capital aberto. A remuneração total paga a C de todos os membros do grupo afiliado é de 3.000.000 para o ano tributável, da qual a Corporação X paga 1.500.000 da Corporação Y paga 900.000 e a Corporação Z paga 600.000. Como a compensação paga por todos os membros do grupo afiliado é agregada para fins da seção 162 (m), 2.000.000 da remuneração agregada paga não é deduzida. As empresas X, Y e Z são tratadas como pagando uma parcela proporcional da compensação não dedutível. Assim, dois terços do pagamento de cada empresa serão não dedutíveis. A Corporação X possui uma despesa de compensação não dedutível de 1.000.000 (1.500.000 xD7 2.000.000 3.000.000). A Corporação Y tem uma despesa de compensação não dedutível de 600.000 (900.000 xD7 2.000.000 3.000.000). A Corporação Z tem uma despesa de compensação não dedutível de 400.000 (600.000 xD7 2.000.000 3.000.000). A Corporação W, contribuinte do ano civil, tem ativos totais iguais ou superiores a 5 milhões e uma classe de títulos de capital mantidos em registro por 500 ou mais pessoas em 31 de dezembro de 1994. No entanto, de acordo com o Exchange Act, a Corporação W não é obrigada a Apresentar uma declaração de registro em relação a esse título até 30 de abril de 1995. Assim, a Corporação W não é uma companhia aberta em 31 de dezembro de 1994, mas é uma companhia aberta em 31 de dezembro de 1995. Os fatos são os mesmos que em Exemplo 3, exceto que, em 15 de dezembro de 1996, a Corporação W arquiva com a Securities and Exchange Commission para divulgar que a Corporação W não é mais obrigada a ser registrada nos termos da seção 12 do Exchange Act e a rescindir o registro de valores mobiliários ao abrigo dessa provisão. Como a Corporação W já não está sujeita às obrigações de relatório do Exchange Act em 31 de dezembro de 1996, a Corporação W não é uma corporação pública para o ano fiscal de 1996, mesmo que o registro de títulos da Corporação W não termina até 90 dias após os arquivos da Corporação W Com a Securities and Exchange Commission. (D) Exceção para compensação paga em comissão. O limite de dedução no parágrafo (b) desta seção não se aplica a nenhuma compensação paga com base em comissão. Para o efeito, a remuneração é paga com base na comissão se os fatos e as circunstâncias mostrem que é pago unicamente por conta do resultado gerado diretamente pelo desempenho individual do indivíduo a quem a remuneração é paga. A compensação não deixa de ser atribuível diretamente ao indivíduo, apenas porque serviços de suporte, como serviços de secretaria ou de pesquisa, são utilizados na geração de renda. No entanto, se a remuneração for paga em função de padrões de desempenho mais amplos, como a renda produzida por uma unidade de negócios da corporação, a compensação não é qualificada para a exceção prevista no presente parágrafo (d). (E) Exceção para remuneração baseada em desempenho qualificada - (1) Em geral. O limite de dedução no parágrafo (b) desta seção não se aplica a compensação qualificada baseada em desempenho. A remuneração qualificada baseada no desempenho é uma compensação que atende a todos os requisitos dos parágrafos (e) (2) a (e) (5) desta seção. (2) Requisito de objetivo de desempenho - (i) Objetivo pré-estabelecido. A remuneração qualificada baseada no desempenho deve ser paga unicamente em função da realização de um ou mais objetivos de desempenho preestabelecidos e objetivos. Uma meta de desempenho é considerada pré-estabelecida se for estabelecida por escrito pelo comitê de compensação no prazo de 90 dias após o início do período de serviço ao qual a meta de desempenho se relaciona, desde que o resultado seja substancialmente incerto no momento em que a comissão de compensação realmente Estabelece o objetivo. No entanto, em nenhum caso, um objetivo de desempenho será considerado pré-estabelecido se for estabelecido após 25% do período de serviço (conforme agendado de boa fé no momento em que o objetivo é estabelecido) tenha decorrido. Um objetivo de desempenho é objetivo se um terceiro tendo conhecimento dos fatos relevantes pudesse determinar se o objetivo foi atingido. Os objetivos de desempenho podem ser baseados em um ou mais critérios de negócios que se aplicam ao indivíduo, a uma unidade de negócios ou à corporação como um todo. Esses critérios de negócios podem incluir, por exemplo, o preço das ações, a participação no mercado, as vendas, o lucro por ação, o retorno sobre o patrimônio líquido ou os custos. Um objetivo de desempenho não precisa, no entanto, ser baseado em um aumento ou resultado positivo sob um critério de negócios e poderia incluir, por exemplo, manter o status quo ou limitar perdas econômicas (medidas, em cada caso, por referência a um critério comercial específico) . Um objetivo de desempenho não inclui o mero emprego contínuo do empregado coberto. Assim, uma provisão de aquisição de direitos com base unicamente no emprego continuado não constitui um objetivo de desempenho. Veja o parágrafo (e) (2) (vi) desta seção para as regras de compensação que se baseiam em um aumento no preço do estoque. (Ii) fórmula de compensação objetiva. Um objetivo de desempenho pré-estabelecido deve indicar, em termos de fórmula ou padrão objetivo, o método para calcular o montante da compensação a pagar ao empregado se o objetivo for atingido. Uma fórmula ou padrão é objetivo se um terceiro ter conhecimento dos resultados de desempenho relevantes pudesse calcular o valor a ser pago ao empregado. Além disso, uma fórmula ou padrão deve especificar os funcionários individuais ou a classe de funcionários a que se aplica. (A) Os termos de uma fórmula ou padrão objetivo devem excluir a discrição para aumentar o valor da remuneração a pagar que, de outra forma, seria devido após a consecução do objetivo. Um objetivo de desempenho não é discricionário para os propósitos deste parágrafo (e) (2) (iii) simplesmente porque o comitê de compensação reduz ou elimina a compensação ou outro benefício econômico que foi devido após a consecução do objetivo. No entanto, o exercício de discrição negativa com relação a um empregado não é permitido para resultar em aumento no valor a pagar a outro empregado. Assim, por exemplo, no caso de uma pool de bônus, se o valor a pagar a cada funcionário for declarado em termos de porcentagem do pool, a soma dessas porcentagens individuais do pool não poderá exceder 100%. Se os termos de uma fórmula ou padrão objetivo não impedirem o poder discricionário de aumentar o valor da compensação, apenas porque o valor da remuneração a ser paga após a realização do objetivo de desempenho é baseado, no todo ou em parte, em uma porcentagem do salário ou da base Pagamento e o valor em dólares do salário ou salário base não é fixado no momento em que a meta de desempenho é estabelecida, então a fórmula ou padrão objetivo não será considerado discricionário para os propósitos deste parágrafo (e) (2) (iii) se o O valor máximo em dólares a ser pago é fixado nesse momento. (B) Se a remuneração for pagável após a consecução de uma meta de desempenho e uma alteração for feita para acelerar o pagamento da remuneração a uma data anterior após a consecução do objetivo, a mudança será tratada como um aumento no valor De compensação, a menos que o montante da compensação paga seja descontado para refletir razoavelmente o valor do tempo do dinheiro. Se a remuneração for paga após a consecução de uma meta de desempenho e uma alteração for feita para adiar o pagamento de uma compensação para uma data posterior, qualquer montante pago em excesso do valor inicialmente devido ao empregado não será tratado como Um aumento no valor da compensação se o valor adicional se basear em uma taxa de juros razoável ou em um ou mais investimentos reais predeterminados (independentemente de os ativos associados ao valor originalmente devido estão efectivamente investidos no mesmo), de modo que o valor a pagar pelo O empregador na data posterior será baseado na taxa de retorno real de um investimento específico (incluindo qualquer diminuição, bem como qualquer aumento no valor de um investimento). Se a compensação for pagável sob a forma de propriedade, uma alteração no momento da transferência desse imóvel após a consecução do objetivo não será tratada como um aumento no valor da compensação para os propósitos deste parágrafo (e) (2) (Iii). Assim, por exemplo, se os termos de uma bolsa de ações fornecerem ações para serem transferidas após a consecução de uma meta de desempenho e a transferência do estoque também está sujeita a um cronograma de aquisição, uma mudança no cronograma de aquisição que acelera ou defaça A transferência de ações não será tratada como um aumento no valor da compensação a pagar de acordo com a meta de desempenho. (C) A compensação atribuível a uma opção de compra de ações, direito de valorização de ações ou outra remuneração baseada em ações não deixa de satisfazer os requisitos deste parágrafo (e) (2) na medida em que uma alteração na concessão ou prêmio é feita para Reflete uma mudança na capitalização corporativa, como uma divisão ou dividendo de ações, ou uma transação corporativa, como qualquer fusão de uma corporação em outra corporação, qualquer consolidação de duas ou mais corporações em outra corporação, qualquer separação de uma corporação (incluindo uma Spinoff ou outra distribuição de estoque ou propriedade por uma corporação), qualquer reorganização de uma corporação (seja ou não tal reorganização dentro da definição desse termo na seção 368), ou qualquer liquidação parcial ou completa por uma corporação. (Iv) Determinação de subvenção por concessão. A determinação de se a indemnização satisfaz os requisitos deste parágrafo (e) (2) geralmente deve ser feita por concessão por concessão. Assim, por exemplo, se a compensação atribuível a uma outorga de opção de estoque satisfaz os requisitos deste parágrafo (e) (2) geralmente é determinada com base na concessão específica concedida e sem respeito aos termos de qualquer outra outorga de opção ou outra Concessão de compensação, ao mesmo ou a outro empregado. Como outro exemplo, exceto conforme previsto no parágrafo (e) (2) (vi), se uma concessão de estoque restrito ou outra compensação baseada em estoque satisfaz os requisitos deste parágrafo (e) (2) é determinada sem considerar se Dividendos, equivalentes de dividendos ou outras distribuições similares com relação ao estoque, em compensação baseada em ações são pagáveis ​​antes da realização do objetivo de desempenho. Os dividendos, equivalentes de dividendos ou outras distribuições similares com relação a ações que são tratadas como subsídios separados de acordo com este parágrafo (e) (2) (iv) não são compensação baseada em desempenho, a menos que satisfaçam separadamente os requisitos deste parágrafo (e) ( 2). (V) Compensação dependente da realização do objetivo de desempenho. A compensação não satisfaz os requisitos deste parágrafo (e) (2) se os fatos e circunstâncias indicarem que o empregado receberia a totalidade ou parte da remuneração independentemente de o objetivo de desempenho ser alcançado. Assim, se o pagamento de uma compensação sob uma concessão ou prêmio for apenas nominal ou parcialmente condizente com a consecução de uma meta de desempenho, nenhuma das compensações pagáveis ​​sob a concessão ou prêmio será considerada baseada em desempenho. Por exemplo, se um empregado tem direito a um bônus em qualquer um dos dois arranjos, onde o pagamento em um acordo baseado em não desempenho depende da incapacidade de atingir os objetivos de desempenho de acordo com um acordo baseado em desempenho, então nenhum dos dois arranjos prevê uma compensação que Satisfaz os requisitos deste parágrafo (e) (2). A compensação não deixa de ser uma compensação qualificada com base no desempenho, simplesmente porque o plano permite que a remuneração seja paga após a morte, deficiência ou mudança de propriedade ou controle, embora a compensação efetivamente paga por esses eventos antes da realização do objetivo de desempenho Não satisfaria os requisitos deste parágrafo (e) (2). Como uma exceção à regra geral estabelecida na primeira frase do parágrafo (e) (2) (iv) desta seção, a determinação de fatos e circunstâncias referida na primeira frase deste parágrafo (e) (2) (V) é feita levando em consideração todos os planos, acordos e acordos que prevêem compensação ao empregado. (Vi) Aplicação de requisitos para opções de ações e direitos de valorização de ações - (A) Em geral. A compensação atribuível a uma opção de compra de ações ou a um direito de apreciação de ações é considerada como satisfazendo os requisitos deste parágrafo (e) (2) se a concessão ou a concessão for feita pelo comitê de compensação o plano sob o qual a opção ou direito é concedido indica o máximo Número de ações em relação a quais opções ou direitos podem ser concedidos durante um período especificado a qualquer empregado individual e, nos termos da opção ou direito, o montante da remuneração que o empregado pode receber é baseado apenas em um aumento no valor de O estoque após a data da concessão ou prêmio. Um plano pode satisfazer o requisito de fornecer um número máximo de ações em relação às quais as opções de compra de ações e os direitos de valorização de ações podem ser concedidos a qualquer empregado individual durante um período especificado, se o plano especificar um número máximo agregado de ações em relação a quais opções de ações Direitos de valorização de ações, ações restritas, unidades de ações restritas e outros prêmios com base em ações que podem ser concedidos a qualquer empregado individual durante um período especificado de acordo com um plano aprovado pelos acionistas de acordo com xA7 1.162-27 (e) (4). Se o montante da compensação que o empregado pode receber ao abrigo da concessão ou do prêmio não se basear unicamente no aumento do valor da ação após a data de concessão ou prêmio (por exemplo, no caso de ações restritas ou uma opção que seja Concedido com um preço de exercício inferior ao valor justo de mercado das ações a partir da data da concessão), nenhuma das indenizações atribuíveis à concessão ou a concessão é uma remuneração baseada em desempenho qualificada nos termos deste parágrafo (e) (2) ( através da). 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). (B) Cancellation and repricing. Compensation attributable to a stock option or stock appreciation right does not satisfy the requirements of this paragraph (e)(2) to the extent that the number of options granted exceeds the maximum number of shares for which options may be granted to the employee as specified in the plan. If an option is canceled, the canceled option continues to be counted against the maximum number of shares for which options may be granted to the employee under the plan. If, after grant, the exercise price of an option is reduced, the transaction is treated as a cancellation of the option and a grant of a new option. In such case, both the option that is deemed to be canceled and the option that is deemed to be granted reduce the maximum number of shares for which options may be granted to the employee under the plan. This paragraph (e)(2)(vi)(B) also applies in the case of a stock appreciation right where, after the award is made, the base amount on which stock appreciation is calculated is reduced to reflect a reduction in the fair market value of stock. (vii) Examples. This paragraph (e)(2) may be illustrated by the following examples: No later than 90 days after the start of a fiscal year, but while the outcome is substantially uncertain, Corporation S establishes a bonus plan under which A, the chief executive officer, will receive a cash bonus of 500,000, if year-end corporate sales are increased by at least 5 percent. The compensation committee retains the right, if the performance goal is met, to reduce the bonus payment to A if, in its judgment, other subjective factors warrant a reduction. The bonus will meet the requirements of this paragraph (e)(2). The facts are the same as in Example 1, except that the bonus is based on a percentage of Corporation Ss total sales for the fiscal year. Because Corporation S is virtually certain to have some sales for the fiscal year, the outcome of the performance goal is not substantially uncertain, and therefore the bonus does not meet the requirements of this paragraph (e)(2). The facts are the same as in Example 1, except that the bonus is based on a percentage of Corporation Ss total profits for the fiscal year. Although some sales are virtually certain for virtually all public companies, it is substantially uncertain whether a company will have profits for a specified future period even if the company has a history of profitability. Therefore, the bonus will meet the requirements of this paragraph (e)(2). B is the general counsel of Corporation R, which is engaged in patent litigation with Corporation S. Representatives of Corporation S have informally indicated to Corporation R a willingness to settle the litigation for 50,000,000. Subsequently, the compensation committee of Corporation R agrees to pay B a bonus if B obtains a formal settlement for at least 50,000,000. The bonus to B does not meet the requirement of this paragraph (e)(2) because the performance goal was not established at a time when the outcome was substantially uncertain. Corporation S, a public utility, adopts a bonus plan for selected salaried employees that will pay a bonus at the end of a 3-year period of 750,000 each if, at the end of the 3 years, the price of S stock has increased by 10 percent. The plan also provides that the 10-percent goal will automatically adjust upward or downward by the percentage change in a published utilities index. Thus, for example, if the published utilities index shows a net increase of 5 percent over a 3-year period, then the salaried employees would receive a bonus only if Corporation S stock has increased by 15 percent. Conversely, if the published utilities index shows a net decrease of 5 percent over a 3-year period, then the salaried employees would receive a bonus if Corporation S stock has increased by 5 percent. Because these automatic adjustments in the performance goal are preestablished, the bonus meets the requirement of this paragraph (e)(2), notwithstanding the potential changes in the performance goal. The facts are the same as in Example 5, except that the bonus plan provides that, at the end of the 3-year period, a bonus of 750,000 will be paid to each salaried employee if either the price of Corporation S stock has increased by 10 percent or the earnings per share on Corporation S stock have increased by 5 percent. If both the earnings-per-share goal and the stock-price goal are preestablished, the compensation committees discretion to choose to pay a bonus under either of the two goals does not cause any bonus paid under the plan to fail to meet the requirement of this paragraph (e)(2) because each goal independently meets the requirements of this paragraph (e)(2). The choice to pay under either of the two goals is tantamount to the discretion to choose not to pay under one of the goals, as provided in paragraph (e)(2)(iii) of this section. Corporation U establishes a bonus plan under which a specified class of employees will participate in a bonus pool if certain preestablished performance goals are attained. The amount of the bonus pool is determined under an objective formula. Under the terms of the bonus plan, the compensation committee retains the discretion to determine the fraction of the bonus pool that each employee may receive. The bonus plan does not satisfy the requirements of this paragraph (e)(2). Although the aggregate amount of the bonus plan is determined under an objective formula, a third party could not determine the amount that any individual could receive under the plan. The facts are the same as in Example 7, except that the bonus plan provides that a specified share of the bonus pool is payable to each employee, and the total of these shares does not exceed 100 of the pool. The bonus plan satisfies the requirements of this paragraph (e)(2). In addition, the bonus plan will satisfy the requirements of this paragraph (e)(2) even if the compensation committee retains the discretion to reduce the compensation payable to any individual employee, provided that a reduction in the amount of one employees bonus does not result in an increase in the amount of any other employees bonus. 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. The facts are the same as in Example 9, except that, within the same 3-year grant period, the fair market value of Corporation V stock is significantly less than the exercise price of the options. The compensation committee reprices those options to that lower current fair market value of Corporation V stock. The repricing of the options for 50,000 shares held by each salaried employee is treated as the grant of new options for an additional 50,000 shares to each employee. Thus, each of the salaried employees is treated as having received grants for 100,000 shares. Consequently, if any additional options are granted to those employees during the 3-year period, compensation attributable to the exercise of those additional options would not satisfy the requirements of this paragraph (e)(2). The results would be the same if the compensation committee canceled the outstanding options and issued new options to the same employees that were exercisable at the fair market value of Corporation V stock on the date of reissue. Corporation W maintains a plan under which each participating employee may receive incentive stock options, nonqualified stock options, stock appreciation rights, or grants of restricted Corporation W stock. The plan specifies that each participating employee may receive options, stock appreciation rights, restricted stock, or any combination of each, for no more than 20,000 shares over the life of the plan. The plan provides that stock options may be granted with an exercise price of less than, equal to, or greater than fair market value on the date of grant. Options granted with an exercise price equal to, or greater than, fair market value on the date of grant do not fail to meet the requirements of this paragraph (e)(2) merely because the compensation committee has the discretion to determine the types of awards ( i. e. options, rights, or restricted stock) to be granted to each employee or the discretion to issue options or make other compensation awards under the plan that would not meet the requirements of this paragraph (e)(2). Whether an option granted under the plan satisfies the requirements of this paragraph (e)(2) is determined on the basis of the specific terms of the option and without regard to other options or awards under the plan. Corporation X maintains a plan under which stock appreciation rights may be awarded to key employees. The plan permits the compensation committee to make awards under which the amount of compensation payable to the employee is equal to the increase in the stock price plus a percentage x201Cgross upx201D intended to offset the tax liability of the employee. In addition, the plan permits the compensation committee to make awards under which the amount of compensation payable to the employee is equal to the increase in the stock price, based on the highest price, which is defined as the highest price paid for Corporation X stock (or offered in a tender offer or other arms-length offer) during the 90 days preceding exercise. Compensation attributable to awards under the plan satisfies the requirements of paragraph (e)(2)(vi) of this section, provided that the terms of the plan specify the maximum number of shares for which awards may be made. Corporation W adopts a plan under which a bonus will be paid to the CEO only if there is a 10 increase in earnings per share during the performance period. The plan provides that earnings per share will be calculated without regard to any change in accounting standards that may be required by the Financial Accounting Standards Board after the goal is established. After the goal is established, such a change in accounting standards occurs. Corporation Ws reported earnings, for purposes of determining earnings per share under the plan, are adjusted pursuant to this plan provision to factor out this change in standards. This adjustment will not be considered an exercise of impermissible discretion because it is made pursuant to the plan provision. Corporation X adopts a performance-based incentive pay plan with a four-year performance period. Bonuses under the plan are scheduled to be paid in the first year after the end of the performance period (year 5). However, in the second year of the performance period, the compensation committee determines that any bonuses payable in year 5 will instead, for bona fide business reasons, be paid in year 10. The compensation committee also determines that any compensation that would have been payable in year 5 will be adjusted to reflect the delay in payment. The adjustment will be based on the greater of the future rate of return of a specified mutual fund that invests in blue chip stocks or of a specified venture capital investment over the five-year deferral period. Each of these investments, considered by itself, is a predetermined actual investment because it is based on the future rate of return of an actual investment. However, the adjustment in this case is not based on predetermined actual investments within the meaning of paragraph (e)(2)(iii)(B) of this section because the amount payable by Corporation X in year 10 will be based on the greater of the two investment returns and, thus, will not be based on the actual rate of return on either specific investment. The facts are the same as in Example 14, except that the increase will be based on Moodys Average Corporate Bond Yield over the five-year deferral period. Because this index reflects a reasonable rate of interest, the increase in the compensation payable that is based on the indexs rate of return is not considered an impermissible increase in the amount of compensation payable under the formula. The facts are the same as in Example 14, except that the increase will be based on the rate of return for the Standard amp Poors 500 Index. This index does not measure interest rates and thus does not represent a reasonable rate of interest. In addition, this index does not represent an actual investment. Therefore, any additional compensation payable based on the rate of return of this index will result in an impermissible increase in the amount payable under the formula. If, in contrast, the increase were based on the rate of return of an existing mutual fund that is invested in a manner that seeks to approximate the Standard amp Poors 500 Index, the increase would be based on a predetermined actual investment within the meaning of paragraph (e)(2)(iii)(B) of this section and thus would not result in an impermissible increase in the amount payable under the formula. (3) Outside directors - (i) General rule. The performance goal under which compensation is paid must be established by a compensation committee comprised solely of two or more outside directors. A director is an outside director if the director - (A) Is not a current employee of the publicly held corporation (B) Is not a former employee of the publicly held corporation who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year (C) Has not been an officer of the publicly held corporation and (D) Does not receive remuneration from the publicly held corporation, either directly or indirectly, in any capacity other than as a director. For this purpose, remuneration includes any payment in exchange for goods or services. (ii) Remuneration received. For purposes of this paragraph (e)(3), remuneration is received, directly or indirectly, by a director in each of the following circumstances: (A) If remuneration is paid, directly or indirectly, to the director personally or to an entity in which the director has a beneficial ownership interest of greater than 50 percent. For this purpose, remuneration is considered paid when actually paid (and throughout the remainder of that taxable year of the corporation) and, if earlier, throughout the period when a contract or agreement to pay remuneration is outstanding. (B) If remuneration, other than de minimis remuneration, was paid by the publicly held corporation in its preceding taxable year to an entity in which the director has a beneficial ownership interest of at least 5 percent but not more than 50 percent. For this purpose, remuneration is considered paid when actually paid or, if earlier, when the publicly held corporation becomes liable to pay it. (C) If remuneration, other than de minimis remuneration, was paid by the publicly held corporation in its preceding taxable year to an entity by which the director is employed or self-employed other than as a director. For this purpose, remuneration is considered paid when actually paid or, if earlier, when the publicly held corporation becomes liable to pay it. (iii) De minimis remuneration - (A) In general. For purposes of paragraphs (e)(3)(ii)(B) and (C) of this section, remuneration that was paid by the publicly held corporation in its preceding taxable year to an entity is de minimis if payments to the entity did not exceed 5 percent of the gross revenue of the entity for its taxable year ending with or within that preceding taxable year of the publicly held corporation. (B) Remuneration for personal services and substantial owners. Notwithstanding paragraph (e)(3)(iii)(A) of this section, remuneration in excess of 60,000 is not de minimis if the remuneration is paid to an entity described in paragraph (e)(3)(ii)(B) of this section, or is paid for personal services to an entity described in paragraph (e)(3)(ii)(C) of this section. (iv) Remuneration for personal services. For purposes of paragraph (e)(3)(iii)(B) of this section, remuneration from a publicly held corporation is for personal services if - (A) The remuneration is paid to an entity for personal or professional services, consisting of legal, accounting, investment banking, and management consulting services (and other similar services that may be specified by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin), performed for the publicly held corporation, and the remuneration is not for services that are incidental to the purchase of goods or to the purchase of services that are not personal services and (B) The director performs significant services (whether or not as an employee) for the corporation, division, or similar organization (within the entity) that actually provides the services described in paragraph (e)(3)(iv)(A) of this section to the publicly held corporation, or more than 50 percent of the entitys gross revenues (for th e entitys preceding taxable year) are derived from that corporation, subsidiary, or similar organization. (v) Entity defined. For purposes of this paragraph (e)(3), entity means an organization that is a sole proprietorship, trust, estate, partnership, or corporation. The term also includes an affiliated group of corporations as defined in section 1504 (determined without regard to section 1504(b)) and a group of organizations that would be an affiliated group but for the fact that one or more of the organizations are not incorporated. However, the aggregation rules referred to in the preceding sentence do not apply for purposes of determining whether a director has a beneficial ownership interest of at least 5 percent or greater than 50 percent. (vi) Employees and former officers. Whether a director is an employee or a former officer is determined on the basis of the facts at the time that the individual is serving as a director on the compensation committee. Thus, a director is not precluded from being an outside director solely because the director is a former officer of a corporation that previously was an affiliated corporation of the publicly held corporation. For example, a director of a parent corporation of an affiliated group is not precluded from being an outside director solely because that director is a former officer of an affiliated subsidiary that was spun off or liquidated. However, an outside director would no longer be an outside director if a corporation in which the director was previously an officer became an affiliated corporation of the publicly held corporation. (vii) Officer. Solely for purposes of this paragraph (e)(3), officer means an administrative executive who is or was in regular and continued service. The term implies continuity of service and excludes those employed for a special and single transaction. An individual who merely has (or had) the title of officer but not the authority of an officer is not considered an officer. The determination of whether an individual is or was an officer is based on all of the facts and circumstances in the particular case, including without limitation the source of the individuals authority, the term for which the individual is elected or appointed, and the nature and extent of the individuals duties. (viii) Members of affiliated groups. For purposes of this paragraph (e)(3), the outside directors of the publicly held member of an affiliated group are treated as the outside directors of all members of the affiliated group. (ix) Examples. This paragraph (e)(3) may be illustrated by the following examples: Corporations X and Y are members of an affiliated group of corporations as defined in section 1504, until July 1, 1994, when Y is sold to another group. Prior to the sale, A served as an officer of Corporation Y. After July 1, 1994, A is not treated as a former officer of Corporation X by reason of having been an officer of Y. Corporation Z, a calendar-year taxpayer, uses the services of a law firm by which B is employed, but in which B has a less-than-5-percent ownership interest. The law firm reports income on a July 1 to June 30 basis. Corporation Z appoints B to serve on its compensation committee for calendar year 1998 after determining that, in calendar year 1997, it did not become liable to the law firm for remuneration exceeding the lesser of 60,000 or five percent of the law firms gross revenue (calculated for the year ending June 30, 1997). On October 1, 1998, Corporation Z becomes liable to pay remuneration of 50,000 to the law firm on June 30, 1999. For the year ending June 30, 1998, the law firms gross revenue was less than 1 million. Thus, in calendar year 1999, B is not an outside director. However, B may satisfy the requirements for an outside director in calendar year 2000, if, in calendar year 1999, Corporation Z does not become liable to the law firm for additional remuneration. This is because the remuneration actually paid on June 30, 1999 was considered paid on October 1, 1998 under paragraph (e)(3)(ii)(C) of this section. Corporation Z, a publicly held corporation, purchases goods from Corporation A. D, an executive and less - than-5-percent owner of Corporation A, sits on the board of directors of Corporation Z and on its compensation committee. For 1997, Corporation Z obtains representations to the effect that D is not eligible for any commission for Ds sales to Corporation Z and that, for purposes of determining Ds compensation for 1997, Corporation As sales to Corporation Z are not otherwise treated differently than sales to other customers of Corporation A (including its affiliates, if any) or are irrelevant. In addition, Corporation Z has no reason to believe that these representations are inaccurate or that it is otherwise paying remuneration indirectly to D personally. Thus, in 1997, no remuneration is considered paid by Corporation Z indirectly to D personally under paragraph (e)(3)(ii)(A) of this section. (i) Corporation W, a publicly held corporation, purchases goods from Corporation T. C, an executive and less - than-5-percent owner of Corporation T, sits on the board of directors of Corporation W and on its compensation committee. Corporation T develops a new product and agrees on January 1, 1998 to pay C a bonus of 500,000 if Corporation W contracts to purchase the product. Even if Corporation W purchases the new product, sales to Corporation W will represent less than 5 percent of Corporation Ts gross revenues. In 1999, Corporation W contracts to purchase the new product and, in 2000, C receives the 500,000 bonus from Corporation T. In 1998, 1999, and 2000, Corporation W does not obtain any representations relating to indirect remuneration to C personally (such as the representations described in Example 3 ). (ii) Thus, in 1998, 1999, and 2000, remuneration is considered paid by Corporation W indirectly to C personally under paragraph (e)(3)(ii)(A) of this section. Accordingly, in 1998, 1999, and 2000, C is not an outside director of Corporation W. The result would have been the same if Corporation W had obtained appropriate representations but nevertheless had reason to believe that it was paying remuneration indirectly to C personally. Corporation R, a publicly held corporation, purchases utility service from Corporation Q, a public utility. The chief executive officer, and less-than-5-percent owner, of Corporation Q is a director of Corporation R. Corporation R pays Corporation Q more than 60,000 per year for the utility service, but less than 5 percent of Corporation Qs gross revenues. Because utility services are not personal services, the fees paid are not subject to the 60,000 de minimis rule for remuneration for personal services within the meaning of paragraph (e)(3)(iii)(B) of this section. Thus, the chief executive officer qualifies as an outside director of Corporation R, unless disqualified on some other basis. Corporation A, a publicly held corporation, purchases management consulting services from Division S of Conglomerate P. The chief financial officer of Division S is a director of Corporation A. Corporation A pays more than 60,000 per year for the management consulting services, but less than 5 percent of Conglomerate Ps gross revenues. Because management consulting services are personal services within the meaning of paragraph (e)(3)(iv)(A) of this section, and the chief financial officer performs significant services for Division S, the fees paid are subject to the 60,000 de minimis rule as remuneration for personal services. Thus, the chief financial officer does not qualify as an outside director of Corporation A. The facts are the same as in Example 6, except that the chief executive officer, and less-than-5-percent owner, of the parent company of Conglomerate P is a director of Corporation A and does not perform significant services for Division S. If the gross revenues of Division S do not constitute more than 50 percent of the gross revenues of Conglomerate P for Ps preceding taxable year, the chief executive officer will qualify as an outside director of Corporation A, unless disqualified on some other basis. (4) Shareholder approval requirement - (i) General rule. The material terms of the performance goal under which the compensation is to be paid must be disclosed to and subsequently approved by the shareholders of the publicly held corporation before the compensation is paid. The requirements of this paragraph (e)(4) are not satisfied if the compensation would be paid regardless of whether the material terms are approved by shareholders. The material terms include the employees eligible to receive compensation a description of the business criteria on which the performance goal is based and either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount of compensation to be paid to the employee if the performance goal is attained (except that, in the case of a formula based, in whole or in part, on a percentage of salary or base pay, the maximum dollar amount of compensation that could be paid to the employee must be disclosed). (ii) Eligible employees. Disclosure of the employees eligible to receive compensation need not be so specific as to identify the particular individuals by name. A general description of the class of eligible employees by title or class is sufficient, such as the chief executive officer and vice presidents, or all salaried employees, all executive officers, or all key employees. (iii) Description of business criteria - (A) In general. Disclosure of the business criteria on which the performance goal is based need not include the specific targets that must be satisfied under the performance goal. For example, if a bonus plan provides that a bonus will be paid if earnings per share increase by 10 percent, the 10-percent figure is a target that need not be disclosed to shareholders. However, in that case, disclosure must be made that the bonus plan is based on an earnings-per-share business criterion. In the case of a plan under which employees may be granted stock options or stock appreciation rights, no specific description of the business criteria is required if the grants or awards are based on a stock price that is no less than current fair market value. (B) Disclosure of confidential information. The requirements of this paragraph (e)(4) may be satisfied even though information that otherwise would be a material term of a performance goal is not disclosed to shareholders, provided that the compensation committee determines that the information is confidential commercial or business information, the disclosure of which would have an adverse effect on the publicly held corporation. Whether disclosure would adversely affect the corporation is determined on the basis of the facts and circumstances. If the compensation committee makes such a determination, the disclosure to shareholders must state the compensation committees belief that the information is confidential commercial or business information, the disclosure of which would adversely affect the company. In addition, the ability not to disclose confidential information does not eliminate the requirement that disclosure be made of the maximum amount of compensation that is payable to an individual under a performance goal. Confidential information does not include the identity of an executive or the class of executives to which a performance goal applies or the amount of compensation that is payable if the goal is satisfied. (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. (v) Disclosure requirements of the Securities and Exchange Commission. To the extent not otherwise specifically provided in this paragraph (e)(4), whether the material terms of a performance goal are adequately disclosed to shareholders is determined under the same standards as apply under the Exchange Act. (vi) Frequency of disclosure. Once the material terms of a performance goal are disclosed to and approved by shareholders, no additional disclosure or approval is required unless the compensation committee changes the material terms of the performance goal. If, however, the compensation committee has authority to change the targets under a performance goal after shareholder approval of the goal, material terms of the performance goal must be disclosed to and reapproved by shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the performance goal. (vii) Shareholder vote. For purposes of this paragraph (e)(4), the material terms of a performance goal are approved by shareholders if, in a separate vote, a majority of the votes cast on the issue (including abstentions to the extent abstentions are counted as voting under applicable state law) are cast in favor of approval. (viii) Members of affiliated group. For purposes of this paragraph (e)(4), the shareholders of the publicly held member of the affiliated group are treated as the shareholders of all members of the affiliated group. (ix) Examples. This paragraph (e)(4) may be illustrated by the following examples: Corporation X adopts a plan that will pay a specified class of its executives an annual cash bonus based on the overall increase in corporate sales during the year. Under the terms of the plan, the cash bonus of each executive equals 100,000 multiplied by the number of percentage points by which sales increase in the current year when compared to the prior year. Corporation X discloses to its shareholders prior to the vote both the class of executives eligible to receive awards and the annual formula of 100,000 multiplied by the percentage increase in sales. This disclosure meets the requirements of this paragraph (e)(4). Because the compensation committee does not have the authority to establish a different target under the plan, Corporation X need not redisclose to its shareholders and obtain their reapproval of the material terms of the plan until those material terms are changed. The facts are the same as in Example 1 except that Corporation X discloses only that bonuses will be paid on the basis of the annual increase in sales. This disclosure does not meet the requirements of this paragraph (e)(4) because it does not include the formula for calculating the compensation or a maximum amount of compensation to be paid if the performance goal is satisfied. Corporation Y adopts an incentive compensation plan in 1995 that will pay a specified class of its executives a bonus every 3 years based on the following 3 factors: increases in earnings per share, reduction in costs for specified divisions, and increases in sales by specified divisions. The bonus is payable in cash or in Corporation Y stock, at the option of the executive. Under the terms of the plan, prior to the beginning of each 3-year period, the compensation committee determines the specific targets under each of the three factors ( i. e. the amount of the increase in earnings per share, the reduction in costs, and the amount of sales) that must be met in order for the executives to receive a bonus. Under the terms of the plan, the compensation committee retains the discretion to determine whether a bonus will be paid under any one of the goals. The terms of the plan also specify that no executive may receive a bonus in excess of 1,500,000 for any 3-year period. To satisfy the requirements of this paragraph (e)(4), Corporation Y obtains shareholder approval of the plan at its 1995 annual shareholder meeting. In the proxy statement issued to shareholders, Corporation Y need not disclose to shareholders the specific targets that are set by the compensation committee. However, Corporation Y must disclose that bonuses are paid on the basis of earnings per share, reductions in costs, and increases in sales of specified divisions. Corporation Y also must disclose the maximum amount of compensation that any executive may receive under the plan is 1,500,000 per 3-year period. Unless changes in the material terms of the plan are made earlier, Corporation Y need not disclose the material terms of the plan to the shareholders and obtain their reapproval until the first shareholders meeting held in 2000. The same facts as in Example 3, except that prior to the beginning of the second 3-year period, the compensation committee determines that different targets will be set under the plan for that period with regard to all three of the performance criteria ( i. e. earnings per share, reductions in costs, and increases in sales). In addition, the compensation committee raises the maximum dollar amount that can be paid under the plan for a 3-year period to 2,000,000. The increase in the maximum dollar amount of compensation under the plan is a changed material term. Thus, to satisfy the requirements of this paragraph (e)(4), Corporation Y must disclose to and obtain approval by the shareholders of the plan as amended. In 1998, Corporation Z establishes a plan under which a specified group of executives will receive a cash bonus not to exceed 750,000 each if a new product that has been in development is completed and ready for sale to customers by January 1, 2000. Although the completion of the new product is a material term of the performance goal under this paragraph (e)(4), the compensation committee determines that the disclosure to shareholders of the performance goal would adversely affect Corporation Z because its competitors would be made aware of the existence and timing of its new product. In this case, the requirements of this paragraph (e)(4) are satisfied if all other material terms, including the maximum amount of compensation, are disclosed and the disclosure affirmatively states that the terms of the performance goal are not being disclosed because the compensation committee has determined that those terms include confidential information, the disclosure of which would adversely affect Corporation Z. (5) Compensation committee certification. The compensation committee must certify in writing prior to payment of the compensation that the performance goals and any other material terms were in fact satisfied. For this purpose, approved minutes of the compensation committee meeting in which the certification is made are treated as a written certification. Certification by the compensation committee is not required for compensation that is attributable solely to the increase in the value of the stock of the publicly held corporation. (f) Companies that become publicly held, spinoffs, and similar transactions - (1) In general. In the case of a corporation that was not a publicly held corporation and then becomes a publicly held corporation, the deduction limit of paragraph (b) of this section 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. However, in the case of such a corporation that becomes publicly held in connection with an initial public offering, this relief applies only to the extent that the prospectus accompanying the initial public offering disclosed information concerning those plans or agreements that satisfied all applicable securities laws then in effect. In accordance with paragraph (c)(1)(ii) of this section, a corporation that is a member of an affiliated group that includes a publicly held corporation is considered publicly held and, therefore, cannot rely on this paragraph (f)(1). (2) Reliance period. Paragraph (f)(1) of this section may be relied upon until the earliest of - (i) The expiration of the plan or agreement (ii) The material modification of the plan or agreement, within the meaning of paragraph (h)(1)(iii) of this section (iii) The issuance of all employer stock and other compensation that has been allocated under the plan 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 the initial public offering occurs or, in the case of a privately held corporation that becomes publicly held without an initial public offering, the first calendar year following the calendar year in which the corporation becomes publicly held. (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. (4) Subsidiaries that become separate publicly held corporations - (i) In general. If a subsidiary that is a member of the affiliated group described in paragraph (c)(1)(ii) of this section becomes a separate publicly held corporation (whether by spinoff or otherwise), any remuneration paid to covered employees of the new publicly held corporation will satisfy the exception for performance-based compensation described in paragraph (e) of this section if the conditions in either paragraph (f)(4)(ii) or (f)(4)(iii) of this section are satisfied. (ii) Prior establishment and approval. Remuneration satisfies the requirements of this paragraph (f)(4)(ii) if the remuneration satisfies the requirements for performance-based compensation set forth in paragraphs (e)(2), (e)(3), and (e)(4) of this section (by application of paragraphs (e)(3)(viii) and (e)(4)(viii) of this section) before the corporation becomes a separate publicly held corporation, and the certification required by paragraph (e)(5) of this section is made by the compensation committee of the new publicly held corporation (but if the performance goals are attained before the corporation becomes a separate publicly held corporation, the certification may be made by the compensation committee referred to in paragraph (e)(3)(viii) of this section before it becomes a separate publicly held corporation). Thus, this paragraph (f)(4)(ii) requires that the outside directors and shareholders (within the meaning of paragraphs (e)(3)(viii) and (e)(4)(viii) of this section) of the corporation before it becomes a separate publicly held corporation establish and approve, respectively, the performance-based compensation for the covered employees of the new publicly held corporation in accordance with paragraphs (e)(3) and (e)(4) of this section. (iii) Transition period. Remuneration satisfies the requirements of this paragraph (f)(4)(iii) if the remuneration satisfies all of the requirements of paragraphs (e)(2), (e)(3), and (e)(5) of this section. The outside directors (within the meaning of paragraph (e)(3)(viii) of this section) of the corporation before it becomes a separate publicly held corporation, or the outside directors of the new publicly held corporation, may establish and administer the performance goals for the covered employees of the new publicly held corporation for purposes of satisfying the requirements of paragraphs (e)(2) and (e)(3) of this section. The certification required by paragraph (e)(5) of this section must be made by the compensation committee of the new publicly held corporation. However, a taxpayer may rely on this paragraph (f)(4)(iii) to satisfy the requirements of paragraph (e) of this section only for compensation paid, or stock options, stock appreciation rights, or restricted property granted, prior to the first regularly scheduled meeting of the shareholders of the new publicly held corporation that occurs more than 12 months after the date the corporation becomes a separate publicly held corporation. Compensation paid, or stock options, stock appreciation rights, or restricted property granted, on or after the date of that meeting of shareholders must satisfy all requirements of paragraph (e) of this section, including the shareholder approval requirement of paragraph (e)(4) of this section, in order to satisfy the requirements for performance-based compensation. (5) Example. The following example illustrates the application of paragraph (f)(4)(ii) of this section: Corporation P, which is publicly held, decides to spin off Corporation S, a wholly owned subsidiary of Corporation P. After the spinoff, Corporation S will be a separate publicly held corporation. Before the spinoff, the compensation committee of Corporation P, pursuant to paragraph (e)(3)(viii) of this section, establishes a bonus plan for the executives of Corporation S that provides for bonuses payable after the spinoff and that satisfies the requirements of paragraph (e)(2) of this section. If, pursuant to paragraph (e)(4)(viii) of this section, the shareholders of Corporation P approve the plan prior to the spinoff, that approval will satisfy the requirements of paragraph (e)(4) of this section with respect to compensation paid pursuant to the bonus plan after the spinoff. However, the compensation committee of Corporation S will be required to certify that the goals are satisfied prior to the payment of the bonuses in order for the bonuses to be considered performance-based compensation. (g) Coordination with disallowed excess parachute payments. The 1,000,000 limitation in paragraph (b) of this section is reduced (but not below zero) by the amount (if any) that would have been included in the compensation of the covered employee for the taxable year but for being disallowed by reason of section 280G. For example, assume that during a taxable year a corporation pays 1,500,000 to a covered employee and no portion satisfies the exception in paragraph (d) of this section for commissions or paragraph (e) of this section for qualified performance-based compensation. Of the 1,500,000, 600,000 is an excess parachute payment, as defined in section 280G(b)(1) and is disallowed by reason of that section. Because the excess parachute payment reduces the limitation of paragraph (b) of this section, the corporation can deduct 400,000, and 500,000 of the otherwise deductible amount is nondeductible by reason of section 162(m). (h) Transition rules - (1) Compensation payable under a written binding contract which was in effect on February 17, 1993 - (i) General rule. The deduction limit of paragraph (b) of this section does not apply to any compensation payable under a written binding contract that was in effect on February 17, 1993. The preceding sentence does not apply unless, under applicable state law, the corporation is obligated to pay the compensation if the employee performs services. However, the deduction limit of paragraph (b) of this section does apply to a contract that is renewed after February 17, 1993. A written binding contract that is terminable or cancelable by the corporation after February 17, 1993, without the employees consent is treated as a new contract as of the date that any such termination or cancellation, if made, would be effective. Thus, for example, if the terms of a contract provide that it will be automatically renewed as of a certain date unless either the corporation or the employee gives notice of termination of the contract at least 30 days before that date, the contract is treated as a new contract as of the date that termination would be effective if that notice were given. Similarly, for example, if the terms of a contract provide that the contract will be terminated or canceled as of a certain date unless either the corporation or the employee elects to renew within 30 days of that date, the contract is treated as renewed by the corporation as of that date. Alternatively, if the corporation will remain legally obligated by the terms of a contract beyond a certain date at the sole discretion of the employee, the contract will not be treated as a new contract as of that date if the employee exercises the discretion to keep the corporation bound to the contract. A contract is not treated as terminable or cancelable if it can be terminated or canceled only by terminating the employment relationship of the employee. (ii) Compensation payable under a plan or arrangement. If a compensation plan or arrangement meets the requirements of paragraph (h)(1)(i) of this section, the compensation paid to an employee pursuant to the plan or arrangement will not be subject to the deduction limit of paragraph (b) of this section even though the employee was not eligible to participate in the plan as of February 17, 1993. However, the preceding sentence does not apply unless the employee was employed on February 17, 1993, by the corporation that maintained the plan or arrangement, or the employee had the right to participate in the plan or arrangement under a written binding contract as of that date. (iii) Material modifications. (A) Paragraph (h)(1)(i) of this section will not apply to any written binding contract that is materially modified. A material modification occurs when the contract is amended to increase the amount of compensation payable to the employee. If a binding written contract is materially modified, it is treated as a new contract entered into as of the date of the material modification. Thus, amounts received by an employee under the contract prior to a material modification are not affected, but amounts received subsequent to the material modification are not treated as paid under a binding, written contract described in paragraph (h)(1)(i) of this section. (B) A modification of the contract that accelerates the payment of compensation will be treated as a material modification unless the amount of compensation paid is discounted to reasonably reflect the time value of money. If the contract is modified to defer the payment of compensation, any compensation paid in excess of the amount that was originally payable to the employee under the contract will not be treated as a material modification if the additional amount is based on either a reasonable rate of interest or one or more predetermined actual investments (whether or not assets associated with the amount originally owed are actually invested therein) such that the amount payable by the employer at the later date will be based on the actual rate of return of the specific investment (including any decrease as well as any increase in the value of the investment). (C) The adoption of a supplemental contract or agreement that provides for increased compensation, or the payment of additional compensation, is a material modification of a binding, written contract where the facts and circumstances show that the additional compensation is paid on the basis of substantially the same elements or conditions as the compensation that is otherwise paid under the written binding contract. However, a material modification of a written binding contract does not include a supplemental payment that is equal to or less than a reasonable cost-of-living increase over the payment made in the preceding year under that written binding contract. In addition, a supplemental payment of compensation that satisfies the requirements of qualified performance-based compensation in paragraph (e) of this section will not be treated as a material modification. (iv) Examples. The following examples illustrate the exception of this paragraph (h)(1): Corporation X executed a 3-year compensation arrangement with C on February 15, 1993, that constitutes a written binding contract under applicable state law. The terms of the arrangement provide for automatic extension after the 3-year term for additional 1-year periods, unless the corporation exercises its option to terminate the arrangement within 30 days of the end of the 3-year term or, thereafter, within 30 days before each anniversary date. Termination of the compensation arrangement does not require the termination of Cs employment relationship with Corporation X. Unless terminated, the arrangement is treated as renewed on February 15, 1996, and the deduction limit of paragraph (b) of this section applies to payments under the arrangement after that date. Corporation Y executed a 5-year employment agreement with B on January 1, 1992, providing for a salary of 900,000 per year. Assume that this agreement constitutes a written binding contract under applicable state law. In 1992 and 1993, B receives the salary of 900,000 per year. In 1994, Corporation Y increases Bs salary with a payment of 20,000. The 20,000 supplemental payment does not constitute a material modification of the written binding contract because the 20,000 payment is less than or equal to a reasonable cost-of-living increase from 1993. However, the 20,000 supplemental payment is subject to the limitation in paragraph (b) of this section. On January 1, 1995, Corporation Y increases Bs salary to 1,200,000. The 280,000 supplemental payment is a material modification of the written binding contract because the additional compensation is paid on the basis of substantially the same elements or conditions as the compensation that is otherwise paid under the written binding contract and it is greater than a reasonable, annual cost-of-living increase. Because the written binding contract is materially modified as of January 1, 1995, all compensation paid to B in 1995 and thereafter is subject to the deduction limitation of section 162(m). Assume the same facts as in Example 2, except that instead of an increase in salary, B receives a restricted stock grant subject to Bs continued employment for the balance of the contract. The restricted stock grant is not a material modification of the binding written contract because any additional compensation paid to B under the grant is not paid on the basis of substantially the same elements and conditions as Bs salary because it is based both on the stock price and Bs continued service. However, compensation attributable to the restricted stock grant is subject to the deduction limitation of section 162(m). (2) Special transition rule for outside directors. A director who is a disinterested director is treated as satisfying the requirements of an outside director under paragraph (e)(3) of this section until the first meeting of shareholders at which directors are to be elected that occurs on or after January 1, 1996. For purposes of this paragraph (h)(2) and paragraph (h)(3) of this section, a director is a disinterested director if the director is disinterested within the meaning of Rule 16b-3(c)(2)(i), 17 CFR 240.16b -3(c)(2)(i), under the Exchange Act (including the provisions of Rule 16b-3(d)(3), as in effect on April 30, 1991). (3) Special transition rule for previously-approved plans - (i) In general. Any compensation paid under a plan or agreement approved by shareholders before December 20, 1993, is treated as satisfying the requirements of paragraphs (e)(3) and (e)(4) of this section, provided that the directors administering the plan or agreement are disinterested directors and the plan was approved by shareholders in a manner consistent with Rule 16b-3(b), 17 CFR 240.16b -3(b), under the Exchange Act or Rule 16b-3(a), 17 CFR 240.16b -3(a) (as contained in 17 CFR part 240 revised April 1, 1990). In addition, for purposes of satisfying the requirements of paragraph (e)(2)(vi) of this section, a plan or agreement is treated as stating a maximum number of shares with respect to which an option or right may be granted to any employee if the plan or agreement that was approved by the shareholders provided for an aggregate limit, consistent with Rule 16b-3(b), 17 CFR 250.16b -3(b), on the shares of employer stock with respect to which awards may be made under the plan or agreement. (ii) Reliance period. The transition rule provided in this paragraph (h)(3) shall continue and may be relied upon until the earliest of - (A) The expiration or material modification of the plan or agreement (B) The issuance of all employer stock and other compensation that has been allocated under the plan or (C) The first meeting of shareholders at which directors are to be elected that occurs after December 31, 1996. (iii) Stock-based compensation. This paragraph (h)(3) 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 (h)(3)(i) of this section if the grant occurs on or before the earliest of the events specified in paragraph (h)(3)(ii) of this section. (iv) Example. The following example illustrates the application of this paragraph (h)(3): Corporation Z adopted a stock option plan in 1991. Pursuant to Rule 16b-3 under the Exchange Act, the stock option plan has been administered by disinterested directors and was approved by Corporation Z shareholders. Under the terms of the plan, shareholder approval is not required again until 2001. In addition, the terms of the stock option plan include an aggregate limit on the number of shares available under the plan. Option grants under the Corporation Z plan are made with an exercise price equal to or greater than the fair market value of Corporation Z stock. Compensation attributable to the exercise of options that are granted under the plan before the earliest of the dates specified in paragraph (h)(3)(ii) of this section will be treated as satisfying the requirements of paragraph (e) of this section for qualified performance-based compensation, regardless of when the options are exercised. (j) Effective date - (1) In general. Section 162(m) and this section apply to compensation that is otherwise deductible by the corporation in a taxable year beginning on or after January 1, 1994. (2) Delayed effective date for certain provisions - (i) Date on which remuneration is considered paid. Notwithstanding paragraph (j)(1) of this section, the rules in the second sentence of each of paragraphs (e)(3)(ii)(A), (e)(3)(ii)(B), and (e)(3)(ii)(C) of this section for determining the date or dates on which remuneration is considered paid to a director are effective for taxable years beginning on or after January 1, 1995. Prior to those taxable years, taxpayers must follow the rules in paragraphs (e)(3)(ii)(A), (e)(3)(ii)(B), and (e)(3)(ii)(C) of this section or another reasonable, good faith interpretation of section 162(m) with respect to the date or dates on which remuneration is considered paid to a director. (ii) Separate treatment of publicly held subsidiaries. Notwithstanding paragraph (j)(1) of this section, the rule in paragraph (c)(1)(ii) of this section that treats publicly held subsidiaries as separately subject to section 162(m) is effective as of the first regularly scheduled meeting of the shareholders of the publicly held subsidiary that occurs more than 12 months after December 2, 1994. The rule for stock-based compensation set forth in paragraph (f)(3) of this section will apply for this purpose, except that the grant must occur before the shareholder meeting specified in this paragraph (j)(2)(ii). Taxpayers may choose to rely on the rule referred to in the first sentence of this paragraph (j)(2)(ii) for the period prior to the effective date of the rule. (iii) Subsidiaries that become separate publicly held corporations. Notwithstanding paragraph (j)(1) of this section, if a subsidiary of a publicly held corporation becomes a separate publicly held corporation as described in paragraph (f)(4)(i) of this section, then, for the duration of the reliance period described in paragraph (f)(2) of this section, the rules of paragraph (f)(1) of this section are treated as applying (and the rules of paragraph (f)(4) of this section do not apply) to remuneration paid to covered employees of that new publicly held corporation pursuant to a plan or agreement that existed prior to December 2, 1994, provided that the treatment of that remuneration as performance-based is in accordance with a reasonable, good faith interpretation of section 162(m). However, if remuneration is paid to covered employees of that new publicly held corporation pursuant to a plan or agreement that existed prior to December 2, 1994, but that remuneration is not performance-based under a reasonable, good faith interpretation of section 162(m), the rules of paragraph (f)(1) of this section will be treated as applying only until the first regularly scheduled meeting of shareholders that occurs more than 12 months after December 2, 1994. The rules of paragraph (f)(4) of this section will apply as of that first regularly scheduled meeting. The rule for stock-based compensation set forth in paragraph (f)(3) of this section will apply for purposes of this paragraph (j)(2)(iii), except that the grant must occur before the shareholder meeting specified in the preceding sentence if the remuneration is not performance-based under a reasonable, good faith interpretation of section 162(m). Taxpayers may choose to rely on the rules of paragraph (f)(4) of this section for the period prior to the applicable effective date referred to in the first or second sentence of this paragraph (j)(2)(iii). (iv) Bonus pools. Notwithstanding paragraph (j)(1) of this section, the rules in paragraph (e)(2)(iii)(A) that limit the sum of individual percentages of a bonus pool to 100 percent will not apply to remuneration paid before January 1, 2001, based on performance in any performance period that began prior to December 20, 1995. (v) Compensation based on a percentage of salary or base pay. Notwithstanding paragraph (j)(1) of this section, the requirement in paragraph (e)(4)(i) of this section that, in the case of certain formulas based on a percentage of salary or base pay, a corporation disclose to shareholders the maximum dollar amount of compensation that could be paid to the employee, will apply only to plans approved by shareholders after April 30, 1995. (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 xA7 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. This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part. 26 CFR Parts 1 and 602 This document contains final regulations that provide guidance under section 987 of the Internal Revenue Code (Code) regarding the determination of the taxable income or loss of a taxpayer with respect to a qualified business unit (QBU) subject to section 987, as well as the timing, amount, character, and source of any section 987 gain or loss. Taxpayers affected by these regulations are corporations and individuals that own QBUs subject to section 987. In addition, published elsewhere in this issue of the Federal Register, temporary and proposed regulations (the temporary regulations) are being issued under section 987 to address aspects of the application of section 987 not addressed in these final regulations. 81 FR 88854 - Recognition and Deferral of Section 987 Gain or LossEffective date. These regulations are effective on December 7, 2016. Applicability date. For dates of applicability, see 1.987-1T(h), 1.987-2T(e), 1.987-3T(f), 1.987-4T(h), 1.987-6T(d), 1.987-7T(d), 1.987-8T(g), 1.987-12T(j), 1.988-1T(j), and 1.988-2T(j). This document contains temporary regulations under section 987 of the Internal Revenue Code (Code) relating to the recognition and deferral of foreign currency gain or loss under section 987 with respect to a qualified business unit (QBU) in connection with certain QBU terminations and certain other transactions involving partnerships. This document also contains temporary regulations under section 987 providing: an annual deemed termination election for a section 987 QBU an elective method, available to taxpayers that make the annual deemed termination election, for translating all items of income or loss with respect to a section 987 QBU at the yearly average exchange rate rules regarding the treatment of section 988 transactions of a section 987 QBU rules regarding QBUs with the U. S. dollar as their functional currency rules regarding combinations and separations of section 987 QBUs rules regarding the translation of income used to pay creditable foreign income taxes and rules regarding the allocation of assets and liabilities of certain partnerships for purposes of section 987. Finally, this document contains temporary regulations under section 988 requiring the deferral of certain section 988 loss that arises with respect to related-party loans. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the Proposed Rules section in this issue of the Federal Register. In addition, in the Rules and Regulations section of this issue of the Federal Register, final regulations are being issued under section 987 to provide general guidance under section 987 regarding the determination of the taxable income or loss of a taxpayer with respect to a QBU. 81 FR 88882 - Recognition and Deferral of Section 987 Gain or LossPublished elsewhere in this issue of the Federal Register, the Treasury Department and the IRS are issuing temporary regulations under section 987 of the Code relating to the recognition and deferral of foreign currency gain or loss under section 987 with respect to a qualified business unit (QBU) in connection with certain QBU terminations and certain other transactions involving partnerships. The temporary regulations also contain rules providing: An annual deemed termination election for a section 987 QBU an elective method, available to taxpayers that make the annual deemed termination election, for translating all items of income or loss with respect to a section 987 QBU at the yearly average exchange rate rules regarding the treatment of section 988 transactions of a section 987 QBU rules regarding QBUs with the U. S. dollar as their functional currency rules regarding combinations and separations of section 987 QBUs rules regarding the translation of income used to pay creditable foreign income taxes and rules regarding the allocation of assets and liabilities of certain partnerships for purposes of section 987. Finally, the temporary regulations contain rules under section 988 requiring the deferral of certain section 988 loss that arises with respect to related-party loans. The text of the temporary regulations serves as the text of these proposed regulations. 2016-12-07 vol. 81 235 - Wednesday, December 7, 201681 FR 88103 - Covered Asset Acquisitions This document contains proposed regulations that relate to the establishment of dollar-value last-in, first-out (LIFO) inventory pools by certain taxpayers that use the inventory price index computation (IPIC) pooling method. The proposed regulations provide rules regarding the proper pooling of manufactured or processed goods and wholesale or retail (resale) goods. The proposed regulations would affect taxpayers who use the IPIC pooling method and whose inventory for a trade or business consists of manufactured or processed goods and resale goods. 2016-11-25 vol. 81 227 - Friday, November 25, 201681 FR 85190 - Update to Minimum Present Value Requirements for Defined Benefit Plan Distributions This document contains proposed regulations relating to the application of section 514(c)(9)(E) of the Internal Revenue Code (Code) to partnerships that hold debt-financed real property and have one or more (but not all) qualified tax-exempt organization partners within the meaning of section 514(c)(9)(C). The proposed regulations amend the current regulations under section 514(c)(9)(E) to allow certain allocations resulting from specified common business practices to comply with the rules under section 514(c)(9)(E). These regulations affect partnerships with qualified tax-exempt organization partners and their partners. 2016-11-17 vol. 81 222 - Thursday, November 17, 201681 FR 80993 - Liabilities Recognized as Recourse Partnership Liabilities Under Section 752 Correction This document contains corrections to final and temporary regulations (TD 9788) that were published in the Federal Register on Wednesday, October 5, 2016 (81 FR 69282). The final and temporary regulations provide rules concerning how liabilities are allocated for purposes of section 707 of the Internal Revenue Code and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability under section 752. 81 FR 80993 - Liabilities Recognized as Recourse Partnership Liabilities Under Section 752 CorrectionThis document contains corrections to final and temporary regulations (TD 9788) that were published in the Federal Register on Wednesday, October 5, 2016 (81 FR 69282). The final and temporary regulations provide rules concerning how liabilities are allocated for purposes of section 707 of the Internal Revenue Code and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability under section 752. 2016-11-16 vol. 81 221 - Wednesday, November 16, 201681 FR 80587 - Section 707 Regarding Disguised Sales, Generally Correction This document contains final regulations that remove the rule that a deemed discharge of indebtedness for which a Form 1099-C, Cancellation of Debt, must be filed occurs at the expiration of a 36-month non-payment testing period. The Treasury Department and the IRS are concerned that the rule creates confusion for taxpayers and does not increase tax compliance by debtors or provide the IRS with valuable third-party information that may be used to ensure taxpayer compliance. The final regulations affect certain financial institutions and governmental entities. 2016-11-03 vol. 81 213 - Thursday, November 3, 201681 FR 76496 - Credit for Increasing Research Activities Correction Partial withdrawal of notice of proposed rulemaking and notice of proposed rulemaking, including by cross reference to temporary regulations. The notice of proposed rulemaking under sections 707 and 752 that was published in the Federal Register on January 30, 2014 (REG-119305-11, 79 FR 4826), is partially withdrawn as of October 5, 2016. Written or electronic comments and requests for a public hearing must be received by January 3, 2017. This document contains proposed regulations that incorporate the text of related temporary regulations and withdraws a portion of a notice of proposed rulemaking (REG-119305-11) to the extent not adopted by final regulations. This document also contains new proposed regulations addressing when certain obligations to restore a deficit balance in a partneraposs capital account are disregarded under section 704 of the Internal Revenue Code (Code) and when partnership liabilities are treated as recourse liabilities under section 752. These regulations would affect partnerships and their partners. 2016-10-04 vol. 81 192 - Tuesday, October 4, 201681 FR 68299 - Credit for Increasing Research Activities This document contains final regulations concerning the application of the credit for increasing research activities. These final regulations provide guidance on software that is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer (internal use software). These final regulations also include examples to illustrate the application of the process of experimentation requirement to software. These final regulations will affect taxpayers engaged in research activities involving software. 81 FR 68378 - Estate, Gift, and Generation-Skipping Transfer Taxes Restrictions on Liquidation of an Interest CorrectionThis document contains a correction to temporary regulations (TD 9776) that were published in the Federal Register on July 22, 2016 (81 FR 47701). The temporary regulations provide guidance regarding the income inclusion rules under section 50(d)(5) of the Internal Revenue Code (Code) that are applicable to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. 81 FR 65541 - Method of Accounting for Gains and Losses on Shares in Money Market Funds Broker Returns With Respect to Sales of Shares in Money Market Funds CorrectionEffective date: These regulations are effective on September 9, 2016. Applicability date: These regulations apply to distributions with annuity starting dates in plan years beginning on or after on or after January 1, 2017. In addition, a taxpayer can elect to apply these regulations with respect to any earlier period. This document contains final regulations providing guidance relating to the minimum present value requirements applicable to certain defined benefit pension plans. These regulations change the regulations regarding the minimum present value requirements for defined benefit plan distributions to permit plans to simplify the treatment of certain optional forms of benefit that are paid partly in the form of an annuity and partly in a single sum or other more accelerated form. These regulations affect participants, beneficiaries, sponsors, and administrators of defined benefit pension plans. 2016-09-02 vol. 81 171 - Friday, September 2, 201681 FR 60609 - Definition of Terms Relating to Marital Status This document contains temporary regulations that provide guidance regarding the income inclusion rules under section 50(d)(5) of the Internal Revenue Code (Code) that are applicable to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. These temporary regulations also provide rules to coordinate the section 50(a) recapture rules with the section 50(d)(5) income inclusion rules. In addition, these temporary regulations provide rules regarding income inclusion upon a lease termination, lease disposition by a lessee, or disposition of a partneraposs or S corporation shareholderaposs entire interest in a lessee partnership or S corporation outside of the recapture period. Accordingly, these regulations will affect lessees of investment credit property when the lessor of such property makes an election to treat the lessee as having acquired the property and an investment credit is determined under section 46 with respect to such lessee. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the Proposed Rules section in this issue of the Federal Register .