In a private letter ruling (PLR), the IRS examined the provisions of a bonus plan intending to qualify for the “performance-based compensation” exemption of Internal Revenue Code §162(m). Section 162(m) generally provides that a publicly traded company may not deduct compensation with respect to “covered employees” to the extent that the compensation exceeds $1 million, unless the compensation meets certain exceptions such as "performance-based compensation.” A requirement for performance-based compensation is that it must meet a pre-established objective performance criteria that is established not later than 90 days after the commencement of the period to which the goal relates. Under the program at issue in the PLR, the performance-based goals were established within the first 90 days of the performance period. The program also set the maximum number of performance units that could be awarded to an individual. However, under the terms of the program, the number of units to be awarded to an individual would be determined after the initial 90 days of the performance period. The IRS, without setting forth any explanation, determined that the ability to determine the number of units after the initial 90-day period did not result in a failure to be performance-based compensation. It would appear that the reason for this conclusion is that the underlying effect of the program terms only allowed the compensation committee discretion to reduce the amount of compensation payable (by awarding fewer units than the established individual maximum limitation). Given recent IRS attention to limiting the ability to qualify amounts as performance-based compensation, this favorable determination by the IRS, like all PLRs that are not binding on the IRS, should not necessarily be relied upon. (PLR 200949005)