The Advisors' Blog

– Tahir J. Naim, Fenwick West

As a possible harbinger of eventual extension of Section 162(m) to all Principal Financial Officers, it should be noted that the “Emergency Economic Stabilization Act” adds new subparagraph (5) to Section 162(m), which limits to $500,000 the deductibility of certain compensation paid to executives of those financial institutions participating in the Treasury’s TARP. Although this was an opportunity for Congress to amend Section 162(m) to bring the “Principal Financial Officer” (as defined by the SEC) into the definition of “covered employee,” the EESA only does this with respect to participants in TARP. Meantime, the “Principal Financial Officer” continues to be excluded from Section 162(m)’s scope (as first reported in the Sept-Oct 2006 issue of The Corporate Executive and formally accepted by the IRS in Notice 2007-49).

Careful readers will note that the EESA refers to the “chief financial officer” without defining the term, but Section 101(c)(5) of the EESA authorizes the Treasury Secretary to promulgate regulations defining terms in the EESA so the likely result will be 162(m) regulations defining ” chief financial officer” as the person who is the “Principal Financial Officer” for purposes of disclosure of executive compensation under the SEC’s rules.