The Advisors' Blog

– Broc Romanek

Among our memos that we have posted about tax reform are some that deal with likely possibility of changes to Section 162(m) – and how to plan for the loss of deductibility. Here’s an excerpt from this Latham & Watkins memo on the topic:

Due to the proposed reduction in the corporate tax rate under both versions of the Bill, deductions taken in 2017 could be more valuable to companies than those taken in 2018.Companies may want to consider securing compensation deductions in 2017, if possible. For example, companies that normally would not be able to deduct 2017 bonuses (such as those that require employment on the date of payment in 2018) may have an opportunity to secure a deduction in 2017 for that compensation by accelerating payment of cash bonuses into 2017. Alternatively, companies could establish a minimum bonus liability under bonus plans by year-end to secure 2017 deductions. Similarly, companies could consider accelerating the vesting and/or payment of equity awards that otherwise would have been vested and/or paid in 2018 into 2017.

Companies would need to ensure actions would not run afoul of the Section 162(m) performance-based compensation requirements, such as the need to certify actual performance through the performance period prior to payment, or constitute impermissible accelerations under Section 409A. Various technical requirements under tax and accounting rules also apply to ensure the acceleration of the timing of the deduction will be honored.