Instructions For Form 1125-E - Compensation Of Officers

Instructions

Department of the Treasury

Internal Revenue Service

for Form 1125-E

(Rev. December 2012)

Compensation of Officers

Section references are to the Internal Revenue Code

Disallowance of Deduction for Employee

unless otherwise noted.

Compensation in Excess of $1 Million

Future Developments

Publicly held corporations cannot deduct compensation to

a “covered employee” to the extent that the compensation

For the latest information about developments related to

exceeds $1 million. Generally, a covered employee is:

Form 1125-E and its instructions, such as legislation

The principal executive officer of the corporation (or an

enacted after they were published, go to

individual acting in that capacity) as of the end of the tax

form1125e.

year or

What's New

An employee whose total compensation must be

reported to shareholders under the Securities Exchange

For tax years beginning in 2012, real estate investment

Act of 1934 because the employee is among the three

trusts (REITs) must use Form 1125-E to report

highest compensated officers for that tax year (other than

compensation of officers if the REIT has total receipts of

the principal executive officer).

$500,000 or more. See Who Must File, below.

For this purpose, compensation does not include the

General Instructions

following.

Income from certain employee trusts, annuity plans, or

Purpose of Form

pensions.

Any benefit paid to an employee that is excluded from

Certain entities with total receipts of $500,000 or more use

the employee's income.

Form 1125-E to provide a detailed report of the deduction

for compensation of officers.

The deduction limit does not apply to:

Who Must File

Commissions based on individual performance,

Qualified performance-based compensation, and

Form 1125-E must be completed and attached to Form

Income payable under a written, binding contract in

1120, 1120-C, 1120-F, 1120-RIC, or 1120-REIT, if the

effect on February 17, 1993.

entity has total receipts (defined below) of $500,000 or

more, and deducts compensation for officers.

The $1 million limit is reduced by amounts disallowed

Definitions and Special Rules

as excess parachute payments under section 280G.

See section 162(m) and Regulations section 1.162-27.

Total Receipts

Also see Notice 2007-49, 2007-25 I.R.B. 1429.

For purposes of Form 1125-E, total receipts are

Limitations on tax benefits for executive compensa-

determined as follows:

tion under the Treasury Troubled Asset Relief Pro-

Form 1120, page 1, line 1c, plus lines 4 through 10;

gram (TARP). The $1 million compensation limit is

Form 1120-C, page 1, line 1a, plus lines 4 through 9;

reduced to $500,000 for executive remuneration and

Form 1120-F, page 3, Section II, line 1a, plus lines 4

deferred deduction executive remuneration paid to

through 10;

covered executives by any entity that receives or has

Form 1120-RIC, Part I, line 8, plus net capital gain from

received financial assistance under TARP. The limit

Part II, line 1, and Form 2438, line 9a;

applies for each period in which obligations arising from

Form 1120-REIT, Part I, line 8, plus net capital gain

financial assistance under TARP remain outstanding. The

from Part III, line 10, and Form 2438, line 9a.

$500,000 is reduced by any amounts disallowed as

excess parachute payments. See section 162(m)(5) for

Golden Parachute Payments

definitions and other special rules. Also see Notice

A portion of the payments made by a corporation to key

2008-94, 2008-44 I.R.B. 1070, for additional guidance.

personnel that exceeds their usual compensation may not

In addition, a portion of any parachute payments made

be deductible. This occurs when the corporation has an

to a covered executive by an applicable employer

agreement (golden parachute) with these key employees

participating in a Treasury troubled asset relief program is

to pay them these excess amounts if control of the

not deductible as compensation if the payments are made

corporation changes. See section 280G and Regulations

because of a severance from employment during an

section 1.280G-1.

applicable tax year. For this purpose, a parachute

payment is any payment to a senior executive officer for

departure from a company for any reason, except for

payments for services performed or benefits accrued.

These limits do not apply to a payment already treated as

Dec 20, 2012

Cat. No. 57670C

Instructions For Form 1125-E - Compensation Of Officers - 2012

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