The IRS has announced a change to the definition of "covered employee" for purposes of 162(m) and has specifically declined to mirror the change to the definition of executive officers who must be disclosed in the SEC compensation tables.

In short, the new executives who will be subject to the $1 million limit on deductible compensation will be:

  • any employee, who as of the close of the taxable year either is the principal executive officer of the taxpayer, or is serving as the acting principal executive officer; or
  • any employee whose total compensation for a taxable year is required to be reported to shareholders under the Securities and Exchange Act for being among the three highest compensated officers.

As a result, it's possible for the CFO (or PFO) to be subject to disclosure in the comp tables of the proxy, but not be one of the individuals whose income is subject to the $1 m limit.

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