The Internal Revenue Service (IRS) has proposed regulations relating to the $1 million deduction limit for qualified performance-based compensation under tax code Section 162(m).

The proposal would clarify that a performance-based compensation plan that grants employees stock options or stock appreciation rights (SARs) "must specify the number of shares with respect to which options or rights may be granted to each individual employee."

The proposed regulations also would clarify application of a "transition" rule that covers privately held corporations that later become publicly held, with respect to existing compensation plans that may qualify as performance-based.

The IRS indicates that the proposed regulations are not intended to reflect substantive changes to the current requirements in the existing regulations, but rather to clarify the current language.

The proposed regulations would apply to taxable years on or after final rules are adopted and published in the Federal Register. Public comments are due by September 22. For more information: