Playing off our earlier post regarding how tax reform proposals never really die, they just resurface in new ways, we thought you might enjoy the following trip down memory lane:

Once a Covered Employee, Always a Covered Employee – Round 1

Attached is the Conference Report relating a portion of the version of the Small Business and Work Opportunity Act of 2007 put forth by the Senate Finance Committee. Though these provisions never made it into the final law, this version of the bill took aim at Code Section 162(m) over a decade ago and proposed modifying the rule to cover compensation received by covered employees, even if they weren’t employed at the end of the year. In addition, this version of the bill covered anyone who served as a CEO at any point during the year and addressed death benefits paid to beneficiaries.

Once a Covered Employee, Always a Covered Employee – Round 2

Many of the same themes reemerged in the 2017 Tax Act’s Code Section 162(m) reforms. Starting in 2018, the following rules apply:

  • Removal for performance-based compensation exception to $1 million deduction cap for covered employees (subject to limited grandfathering);
  • Once a covered employee, always a covered employee; and
  • Addition of CFO to covered employee group.

Nonqualified Deferred Compensation Next?

It will be interesting to see if there’ll be a second act to Code Section 409B. Here again, the Senate Finance Committee’s version of the Small Business and Work Opportunity Act of 2007 may be instructive (see the attachment following the 162(m) summary). Here, the Senate Finance Committee proposed limiting the amount an individual could defer under a nonqualified deferred compensation plan to the lesser of:

  • $1 million; or
  • The individual’s five-year average aggregate taxable compensation.

Stay tuned…