CFOs of Smaller Reporting Companies May Be Considered “Covered Employees” for Purposes of Section 162(m)

Greg Gautam • March 21, 2016

The $1,000,000 limitation on deductions imposed by Section 162(m) of the Internal Revenue Code applies to “covered employees.” In Notice 2007-49, the IRS defined the term “covered employees” as follows:

“The IRS will interpret the term “covered employee” for purposes of § 162(m) to mean any employee of the taxpayer if, as of the close of the taxable year, such employee is the principal executive officer . . . of the taxpayer or an individual acting in such capacity, or if the total compensation of such employee for that taxable year is required to be reported to shareholders under the Exchange Act by reason of such employee being among the 3 highest compensated officers for the taxable year (other than the principal executive officer or the principal financial officer ).”

Accordingly, since the release of Notice 2007-49, chief financial officers have been excluded from the definition of “covered employee” for purposes of Section 162(m) of the Code.

In a Chief Counsel Memorandum released late last year,  the IRS revisited the definition of “covered employees” in the context of smaller reporting companies (generally those having public float of less than $75,000,000, or if no public float, those having annual revenues of less than $50,000,000). In the context of these smaller reporting companies, the Chief Counsel Memorandum provides that, the term “covered employee” could include a principal financial officer if such employee is among the 2 highest compensated officers for the taxable year (other than the principal executive officer).

Smaller reporting companies may wish to take note of the IRS’ change in position and may wish to consider whether compensation payable to the chief financial officer should be structured to qualify for the “performance-based compensation” exception to Section 162(m) of the Code.

Employee burnout: what it is and how to prevent it

By Mardy Gould • May 24, 2024
Employee burnout has become an epidemic in today’s modern workplace. So much so that the World Health Organization (WHO) officially recognizes it as an “occupational phenomenon.”1 While many used to consider mounting workplace stress an individual employee problem, these days, it’s become an employer’s responsibility to prevent burnout before it hurts productivity and business performance—not to mention your employees’ physical and mental health. Luckily, you can prevent burnout from affecting your workforce in several ways. This article will explore the causes and signs of employee burnout and the steps you can take to create a positive work environment where employees feel safe from toxic stress levels.

Form 720 and PCORI fee FAQs

By Mardy Gould • May 23, 2024
If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization? Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness. Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
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