IRS Notice Does Not Jeopardize Exec Comp Grandfather
By Rosina Barker, Mary Hevener, Mims Zabriskie and Jacob Oksman (October 4, 2018, 10:39 PM EDT) -- In August, the Internal Revenue Service issued Notice 2018-68 providing guidance on changes in Internal Revenue Code Section 162(m) made by the Tax Cuts and Jobs Act of 2017.[1] The notice has triggered concern that the employer's negative discretion to reduce or cancel amounts payable under an award defeats the TCJA's grandfather protection for awards. We believe this concern is off the mark and, in this article, we explain why. We think the notice affirms that negative discretion does not jeopardize the grandfather unless so broad as to render the promise illusory rather than an enforceable contract under state law. Depending on the state and the facts, negative discretion does not necessarily make the promise illusory and does not defeat the grandfather. The question comes down to state contract law....
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