Last week I posted on the final regulations released by the IRS and Treasury Department that day and promised to post again with more details. To keep it brief, I will only highlight the portions of the final regulations that are different from or clearer than the proposed regulations.
The final regulations clarify that the company's right to recover [clawback] compensation does not affect the determination of the amount of compensation the company has a written binding contract to pay under applicable law as of November 2, 2017, regardless of whether the company actually exercises its discretion to recover any compensation in the event the condition arises in the future.
The final regulations provide that, if a company extends the exercise period of a grandfathered option or SAR, the extension will not adversely affect the grandfather treatment as long as the extension complies with Treas. §1.409A-1(b)(5)(v)(C)(1).
The final regulations include several "Special Applicability Dates," which delay the application of certain provisions of revised Section 162(m). For example, the special applicability dates provide that the definition of covered employee applies to taxable years ending on or after September 10, 2018 (the publication date of Notice 2018-68). Additionally, as I noted last week, the special applicability dates provide that a corporation that was not a publicly held corporation and then becomes a publicly held corporation on or before December 20, 2019, may rely on the original transition relief provided in §1.162-27(f)(1) until the earliest of the events provided in §1.162-27(f)(2). Furthermore, a subsidiary corporation that is a member of an affiliated group (as defined in §1.162-27(c)(1)(ii)) may rely on the transition relief provided in §1.162-27(f)(4) if it becomes a separate publicly held corporation (whether in a spin-off transaction or otherwise) on or before December 20, 2019.
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