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On August 21 the IRS published guidance (Notice 2018-68 or the “Guidance”) with respect to several significant interpretative issues concerning section 162(m) of the Internal Revenue Code. Section 162(m)
is the Tax Code section that generally limits the compensation deduction for “covered employees” to $1 million. The Tax Cuts and Jobs Act (the “TCJA”), enacted in 2017, amended and changed 162(m) in
numerous respects. In particular, effective for tax years beginning in 2018, its scope was greatly expanded by the elimination of the exception from the $1 million limit for performance-based compensation. The Guidance focuses on uncertainties under the new rules with respect to two major issues--(1) which executive officers (“officers”) of an issuer are considered “covered employees” and (2)
which contracts are not covered under the new rules due to an exception in the TCJA for “written binding contracts in effect on November 2, 2017.”

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