The Case for Negative Discretion in a “Written Binding Contract” for Purposes of Section 162(m)

Code section 162 of the Internal Revenue Code allows companies a deduction of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.  This includes a deduction for reasonable compensation for personal services actually rendered.  However, Code section 162(m) limits the deduction of any publicly held corporation to $1 million with respect to compensation paid to a “covered employee,” subject to certain exceptions.  Section 13601 of Public Law 115-67, better known as the Tax Cuts and Jobs Act (the “Act”), amended Code section 162(m) in three critical ways:

  1. Prior to amendment, Code section 162(m) contained exceptions to the $1 million deduction limitation for qualified performance-based compensation and commissions.  Both of those exceptions were eliminated.
  2. Prior to amendment, each of the chief executive officer and the three highest-paid officers of the corporation other than the chief executive officer and the chief financial officer was a covered employee for purposes of Code section 162(m). The law modified the definition of “covered employee” to increase the number of individuals deemed to be “covered employees.”  Under the new definition, any individual who served as the principal executive officer or principal financial officer at any time during the taxable year and the three highest paid officers during the taxable years other than those individuals whose compensation is required to be disclosed to shareholders will be a covered employee for the taxable year.  In addition, any individual who qualified as a covered employee for any taxable year beginning after December 31, 2016, will remain a covered employee for all future taxable years.
  3. Prior to amendment, a corporation was a “publicly held corporation” only if it had a class of stock that was publicly traded. The law expanded the definition of “publicly held corporation,” to include any issuer required to file reports under Section 15(d) of the Securities Exchange Act of 1934, which generally includes companies that issued public equity or debt securities not listed on a U.S. exchange.

These changes are generally effective for taxable years beginning after December 31, 2017.  However, Section 13601(e)(2) of the Act provides transition relief for “written binding contracts.”  Practitioners have raised concerns about how this transition rule applies to compensation arrangements that include “negative discretion”—or the right of a company to pay less than the amount that would otherwise be paid under the terms of a plan.  Some have questioned whether an arrangement that includes negative discretion constitutes a “written binding contract” for purposes of the transition relief.

This commentary argues that compensation agreements with negative discretion should be treated as “written binding contracts,” and that as a result, the transition relief provided under Section 13601(e)(2) of Public Law 115-67 should apply.

What is a “written binding contract” for purposes of the transition relief?

Section 13601(e)(2) of Public Law 115-67 provides that the changes made by Section 13601 do not apply to remuneration provided pursuant to a “written binding contract” that (1) was in effect on November 2, 2017, and (2) was not modified in any material respect on or after that date.  The most critical inquiry, then, is whether a particular contract constitutes a “written binding contract,” such that deductions for payments under it are treated as grandfathered.

Application of 1993 Transition Rule

The transition rule is drawn from the transition rule included in Code section 162(m)(4)(D) when section 162(m) was adopted in 1993.  Although the Internal Revenue Service (“IRS”) has not released guidance on the meaning of a “written binding contract” under Section 13601(e)(2) of the Act, it issued Treasury Regulations interpreting the earlier transition rule in Code section 162(m)(4)(D).

In Treasury Regulation § 1.162-27(h)(1)(i), the IRS interpreted the “written binding contract” requirement to mean that, under applicable state law, the corporation must be obligated to pay the compensation if the employee performs services.  Further, a written binding contract that is renewed is treated as a new contract as of the date of the renewal.  If a contract could be terminated by the employer without the consent of the employee, the contract is treated as a new contract as of the date on which the termination would be effective if the employer terminated the contract.  Under Treasury Regulation § 1.162-27(h)(1)(ii), if a plan or arrangement constitutes a written binding contract, payments under the plan or arrangement may be considered grandfathered even if the employee was not a participant in the plan at the time that the contract was required to be in effect, provided that the employee was either an employee of the corporation that maintained the plan or arrangement on such date, or had a right to participate in the plan or arrangement under a written binding contract as of that date.

The Joint Explanatory Statement released by the conference committee mirrors the language of the Treasury Regulation and provides the following example of how the transition rule of Section 13601 of the Act is intended to work:

Suppose a covered employee was hired by XYZ Corporation on October 2, 2017 and one of the terms of the written employment contract is that the executive is eligible to participate in the ‘XYZ Corporation Executive Deferred Compensation Plan’ in accordance with the terms of the plan. Assume further that the terms of the plan provide for participation after 6 months of employment, amounts payable under the plan are not subject to discretion, and the corporation does not have the right to amend materially the plan or terminate the plan (except on a prospective basis before any services are performed with respect to the applicable period for which such compensation is to be paid). Provided that the other conditions of the binding contract exception are met (e.g., the plan itself is in writing), payments under the plan are grandfathered, even though the employee was not actually a participant in the plan on November 2, 2017.

The fact that a plan was in existence on November 2, 2017 is not by itself sufficient to qualify the plan for the exception for binding written contracts.

Some conclusions can be drawn from this example.  It is clear that an employee need not have actually earned a benefit under a plan or even been eligible to participate in a plan as of November 2, 2017, for payments under the plan to be grandfathered.  It appears to be enough that the employee was (1) an employee and (2) contractually entitled to participate in the plan as of November 2, 2017.

This is similar to the requirement in the existing Treasury Regulations for the 1993 transition rule, except that the test in the Joint Explanatory Statement is more clearly conjunctive.  However, the example is ultimately frustrating in that it is not clear what kind of deferred compensation plan the conference committee was discussing in the example and whether certain facts present in the example are necessary for an arrangement to be grandfathered.  Of particular concern for purposes of analyzing an agreement in which the employer retains negative discretion is the statement that under the plan, “the corporation does not have the right to amend materially the plan or terminate the plan (except on a prospective basis before any services are performed with respect to the applicable period for which such compensation is to be paid).”

This statement causes concern because negative discretion could be interpreted as the right to amend materially the plan retroactively on a unilateral basis.  Many stock option awards limit the right of the company to terminate or amend the plan in a manner that is detrimental to the value of preexisting awards.  Accordingly, there is little doubt that such an award should be treated as a written binding contract whether or not the award was vested as of November 2, 2017.  The Treasury Regulations and the example in the Joint Explanatory Statement both permit a plan to require that an employee perform services after the grandfather date to be entitled to a payment.  Consequently, it follows that the mere requirement of future services before payment should not alone operate to make an agreement anything other than a binding contract.

Unlike stock options plans, many written annual bonus, performance share unit, and other types of performance-based compensation plans allow the compensation committee to reduce, based on subjective factors, the award otherwise determined based on the attainment of objective performance goals.  Treasury Regulations explicitly permit this practice in performance-based compensation plans by stating that a performance goal is not discretionary merely because the compensation committee is permitted to reduce or eliminate the compensation that was due upon the attainment of the performance goal.  In Treasury Regulations § 1.162-27(e)(2)(vii), Example 8, a corporation’s bonus plan, under which certain employees receive a certain percentage of a bonus pool if certain pre-established performance goals are met, is treated as qualified performance-based compensation even if the compensation committee ultimately reduces the percentage paid to a certain employee, so long as it does not result in a corresponding increase to another employee’s share.

The concern regarding these “negative discretion” arrangements is that the corporation may not be viewed as obligated to pay the amount due under the plan if the corporation has a unilateral right to reduce the amount payable.  In other words, the unilateral ability of the company to reduce the award renders the award less than a written binding contract, as the company would not have an obligation under state law to pay any amount.

However, the example in the Joint Explanatory Statement provides at least some support for interpreting the transition rule broadly enough to permit negative discretion.  In the example, the executive will not be eligible to earn any benefit under the deferred compensation plan until April 2, 2018.  The employer in the example may unilaterally terminate the plan or amend the plan until April 2, 2018.  Accordingly, as of November 2, 2017, the executive in the example has no right to any benefit under the deferred compensation plan.  Yet, the mere existence of a right to participate in the deferred compensation plan as of November 2, 2017, is sufficient for payments under the plan to be treated as grandfathered.  Negative discretion could be analyzed in much the same way.  In other words, the executive’s legal right to have a bonus awarded under an annual bonus plan or other performance-based compensation plan could be sufficient for the award to be treated as grandfathered, even when the amount of the award will not be fixed until a later date.

Moreover, the IRS has not historically taken the position that any negative discretion has the effect of making an agreement nonbinding—at least with respect to a certain amount of negative discretion.  In one IRS field service advice and corresponding chief counsel advice, the IRS ruled on the application of the 1993 transition rule to a bonus plan that permitted negative discretion. Although this guidance is dated and the IRS may reach a different conclusion if the same issue were to be presented today, we nonetheless believe the guidance presents a technical path to reaching what we believe should be the appropriate conclusion regarding the scope of the transition relief in the Act.

In Field Service Advice 199926030 and Chief Counsel Advice 199926030, the IRS addressed two performance pay plans that permitted the employer to adjust the bonus award beyond the objective operation of a formula in the plan.  One plan provided discretion to unilaterally adjust individual awards, based on subjective factors, upward or downward with a range of 80% to 120% of the total “guideline bonus opportunity,” which was tied to predetermined company performance measures. In the second plan, the employer could unilaterally “increase or decrease performance criteria, targets, [and] payment schedules” in its sole discretion based on extraordinary circumstances not anticipated at the time the award was granted.  In considering whether awards under the plans were written binding contracts, the IRS did not take issue with either the positive or the negative discretion permitted under the agreement.  Instead, the IRS found that both plans constituted written binding contracts, despite the discretion provided to the employer.  Moreover, the IRS did not limit the application of the transition rule to the 80% minimum set forth in the first plan—Code section 162(m) was held not to apply to the full amount of the award ultimately given to the employee.

The IRS’s analysis in the field service advice and chief counsel advice combined with the lack of IRS guidance to the contrary suggest that the IRS has historically considered an agreement to be a written binding contract so long as the corporation is obligated to honor the terms of the agreement.  In other words, the fact that the exact amount awarded under an agreement is subject to discretion does not necessarily undermine the status of the agreement as a written binding contract.  The IRS’s analysis in Field Service Advice 199926030 recognizes this by determining that under state law, the employee’s reliance on the contract may have the effect of making a contract binding upon the employer even in an at-will employment relationship.

State law, in at least some jurisdictions, supports the IRS’s analysis and also provides support for the position than a written contract is binding even if the employer has discretion to determine the amount of the bonus paid.  In other contexts, courts in California have held that a contract is unenforceable only if the presence of discretion renders the contract lacking in consideration.  See, e.g., Auto. Vending Co. v. Wisdom, 182 Cal. App. 2d 354 (Cal. Ct. App. 1960).  That a party to a contract reserves the power of varying the price does not render the contract unenforceable if the power to vary the price is subject to implied limitations.  E.g., id. (citing 1 Corbin on Contracts § 98).  Courts are “prone” to imply limitations on discretion when necessary to avoid rendering the consideration under a contract illusory.  See e.g., Third Story Music, Inc. v. Waits, 41 Cal. App. 4th 798 (Cal. Ct. App. 1995) (citing 1 Corbin on Contracts, supra, § 1.17 and 2 Corbin on Contracts § 5.28).

Although various courts have reached different conclusions, a number of courts have held that when a party to a contract is permitted to vary the price to be paid, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing, particularly if no other consideration is paid under the contract.  See, e.g., Perdue v. Crocker Nat’l Bank, 702 P.2d 503 (Cal. 1985); Wolf v. Walt Disney Pictures and Television, 76 Cal. Rptr. 3d 585 (Cal. Ct. App. 2008).  Courts in other states have reached similar conclusions.  See, e.g. Wilson v. Amerada Hess Corp., 773 A.2d 1121 (N.J. 2001) (citing Steven J. Burton, “Breach of Contract and the Common Law Duty to Perform in Good Faith,” 94 Harv. L. Rev. 369 (1980)) (“decisions concerning price that are deferred to the discretion of one of the parties must be made in good faith”); Furrer v. Sw. Or. Cmty. Coll., 103 P.3d 118 (Or. 2004) (citing Wyss v. Inskeep, 699 P.2d 1161 (Or. 1985)) (“Wyss therefore stands for the proposition that, when an employment contract vests an employer with discretion in conferring a particular employment benefit, that discretion must be exercised in good faith.  Stated differently, even if the employer’s discretion extends to denying the benefit, its decision to do so must be made in good faith.”).

In the event that a performance-based compensation agreement has other consideration beside the payment that is subject to discretion, the discretion would not generally render the contract unenforceable under state law.  If the agreement does not have other consideration—such as performance-based award that provides only the bonus subject to the employer’s discretion—at least some courts have relied on the implied covenants of good faith and fair dealing to avoid rendering a contract illusory and to protect the reasonable expectations of the parties.  Indeed, in considering the application of the covenants to a bonus plan under which the employer retained “sole discretion” to terminate or amend the plan “for any . . . reason that [it] determines,” the Seventh Circuit, applying Illinois law, held that the employer’s discretion was limited by the implied covenants and the reasonable expectations of the parties.  Wilson v. Career Educ. Corp., 729 F.3d 665 (7th Cir. 2013).  Ultimately, the employee in that case was unable to demonstrate that the employer exercised its discretion in bad faith, but that does not change the conclusion that the contract itself was binding.  Wilson v. Career Educ. Corp., 844 F.3d 686 (7th Cir. 2016).  The plain language of the transition rule does not require that the specific amount of remuneration paid be fixed under the contract, only that the remuneration be paid under a written binding contract.  Case law demonstrates that the mere presence of discretion to determine the amount of remuneration does not generally render a written contract nonbinding even if the covenant of good faith and fair dealing do not serve as implied limitations on the exercise of the discretion.

More recently, the IRS has also recognized that negative discretion does not render an agreement unenforceable against an employer.  The IRS has recognized in the context of Code section 409A that the presence of negative discretion in a compensation arrangement may lack “substantive significance” such that an amount may not be subject to a substantial risk of forfeiture even if the service recipient retains the right to reduce or eliminate the compensation.  Treas. Reg. § 1.409A-1(b)(1).  The question of whether discretion lacks substantive significance is based on the facts and circumstances, although the examples in the regulations focus on the control or influence of the service provider over or on the service recipient.  It is worth noting that the discussion in the regulations is focused on whether an amount is subject to a substantial risk of forfeiture.  The example in the Joint Explanatory Statement makes clear, however, that an amount may be subject to a substantial risk of forfeiture and still be considered paid under a binding written contract.  Moreover, the initial transition rule in the Senate Finance Chairman’s Mark included a requirement that the compensation be no longer subject to a substantial risk of forfeiture as of December 31, 2016.  That requirement was removed in a later modification to the Chairman’s Mark.  Because the standard of whether an amount is paid under a written binding contract is a lesser standard than finding an amount is not subject to a substantial risk of forfeiture, we do not think the presence of negative discretion precludes a determining than agreement is a written binding contract even if it was sufficient to result in an amount being treated as subject to a substantial risk of forfeiture.

Public Policy Considerations

Sound policy reasons also justify interpreting the transition rule broadly enough to permit negative discretion. First, from a policy perspective, it seems odd that an agreement to pay $X upon the attainment of an objective performance goal would be treated differently than an agreement to pay up to $X upon the attainment of the same goal.  Neither presents a significant opportunity for the corporation to circumvent the Code section 162(m) limitation.  Both arrangements specify a pre-determined maximum amount of performance-based compensation so as to prevent a corporation from seeking to deduct other amounts by treating the amounts as paid under the grandfathered arrangement.  The prohibition on material modifications—and the existing Treasury Regulations interpreting that prohibition for purposes of the 1993 transition rule—are sufficient to prevent any potential abuse.  The limited guidance issued with respect to the 1993 transition rule provides support for applying the transition rule in Section 13601(e)(2) of the Act to allow for negative discretion.

Second, negative discretion is a common feature across many types of executive compensation agreements.  The Treasury Regulations governing what constitutes qualified performance-based pay specifically permit negative discretion, and including negative discretion represents sound corporate governance, as it provides corporations with a mechanism for adjusting performance-based compensation to reflect individual performance in a way that objective performance goals often cannot.  Given the broad adoption of negative discretion in various executive compensation arrangements, Congress should be presumed to have known that many performance-based pay plans include negative discretion.  It seems unlikely Congress would have intended to exclude such a large number of performance-based plans from the provided relief without an explicit discussion of that decision in the conference report.  Sound public policy dictates that the transition rule should not be interpreted in a way that would exclude from its scope a large number of the very arrangements that the rule was primarily designed to grandfather.

Finally, the transition rule should protect employers’ reasonable expectations by shielding pre-existing arrangements that satisfy the requirements for performance-based compensation from the expanded deduction disallowance.  In response to administrative guidance and Congressional prodding, corporations adopted performance-based pay plans to preserve the deductibility of the compensation paid to senior executives.  Unlike the 1993 rule, where a pre-existing agreement that was not grandfathered could always be replaced with a new compensation arrangement that satisfied the requirements for performance-based compensation and ensured future deductibility, corporations that relied on existing law to structure their arrangements as deductible have little recourse if such agreements are beyond the scope of the transition rule under Section 13601 of the Act.  Replacing existing plans with new plans would simply ensure that the compensation paid under the replacement plan is not deductible.

Conclusion

Many companies have been left scrambling to address the effect of the Code section 162(m) changes for purposes of their financial reporting obligations with respect to deferred tax assets.  That is complicated by the uncertainty regarding how broadly the IRS will interpret the transition relief provided in the new law.  The IRS should interpret the language of the transition relief in light of its purpose and in a manner that protects the reasonable expectations of corporations.  Compensation arrangements adopted with the understanding that the payments under them would be deductible should be within the scope of the transition rule.  Ultimately, Treasury or the IRS should quickly issue guidance clarifying that the presence of negative discretion does not preclude an agreement from being treated as a written binding contract.

IRS Issues Guidance on Withholding Changes Made by Tax Reform

In the wake of changes made by the tax reform law (commonly referred to as the Tax Cuts and Jobs Act) to an employer’s withholding obligations, the IRS is working to update its forms and procedures to reflect those changes.  Yesterday, the IRS issued Notice 2018-14 to communicate its progress and provide transition relief in areas that it has not finished updating to reflect the changes in law, including Forms W-4 and application of the withholding rules personal exemptions.

Expiration of Exempt Forms W-4

Employees furnish Form W-4 to employers to claim withholding allowances, or to claim an exemption from income tax withholding.  Forms W-4 that claim an exemption from withholding expire the following year on February 15.  Accordingly, Forms W-4 furnished for 2017 claiming an exemption from withholding on Line 7 will generally expire on February 15, 2018.  In recognition of the fact that a 2018 Form W-4 will likely not be released prior to the expiration of those forms, Notice 2018-14 extends the validity period of 2017 Forms W-4 to February 28, 2018.  Accordingly, employers need not receive a new Form W-4 before February 15, 2017, for employees who have claimed an exemption from withholding nor must they begin withholding on those employees after that date.

Notice 2018-14 also provides specific instructions for how employees should claim an exemption in 2018 using the 2017 Form W-4 (such as striking through 2017 on Line 7 and entering 2018, entering “Exempt 2018” on Line 7, or a substantially similar method) until 30 days after the 2018 Form W-4 is released.  In all cases, the Form W-4 claiming an exemption from withholding must be signed in 2018 to be valid for 2018.  Employees who claim an exemption from withholding for 2018 on a Form 2017 Form W-4 are not required to submit a new Form W-4 for 2018 after the 2018 Form W-4 is released.

Changes in Withholding Allowances

Under the current law, employees must furnish a new Form W-4 to their employers within 10 days of a change in status that reduces the number of withholding allowances to which they are entitled (such as the loss of itemized deductions).  Notice 2018-14 provides that an employee is not required to furnish his or her employer a new Form W-4 reflecting the reduced number of allowances until 30 days after the 2018 Form W-4 is released.

Flat Rate Withholding

As reflected in the revised Notice 1036 (discussed here), employers are not required to implement the changes to the flat withholding rate available for supplemental wages until February 15, 2018, a delay from the otherwise-applicable January 1 effective date for the new rate.  Under the Act, the withholding rates were reduced from 25% and 39.6% to 22% and 37%, respectively.  If an employer withheld at a higher rate for optional flat-rate withholding (25%) on or after January 1, but before February 15, the employer may refund the excess withholding to the employee using the standard rules related to corrections of excess federal income tax withholding, but is not required to do so.  (Notice 2018-14 is silent on correction of overwithholding based on the higher rate for mandatory flat-rate withholding (39.6%), but presumably similar refunds could be made.)

The new 22% rate optional flat-rate withholding on supplemental wages of less than $1 million increases the likelihood that higher-income employees may be significantly underwithheld on bonus and other compensation.  IRS guidance prohibits employers from withholding at any other rate (higher or lower) than the specified rate if the flat-rate method is used.  As a practical matter, it is unclear what enforcement measures, if any, the IRS could take if an employer permitted employees to elect a rate in excess of 22% to avoid underwithholding and the need for estimated tax payments.  In years past, IRS personnel have informally expressed concern that some individuals may attempt to “game the system” by requesting increased rates of flat rate withholding, but this concern seems more hollow when the rate of optional flat withholding – particularly for higher income workers – seems to fall well below applicable income tax rates.

Withholding on Periodic Payments in the Absence of Form W-4P

Prior to amendment by the Act, withholding at the rate applicable to a married individual claiming three withholding allowances was required with respect to periodic payments made under an annuity, IRA, or qualified plan subject to withholding under Code section 3405 if the payee did not provide a Form W-4P.  The Act amended that provision to require withholding at a rate to be determined by the Secretary of the Treasury.  Due to the implementation timeline for changes under the Act, Notice 2018-14 instructs employers to impose withholding in 2018 on such payments at the same rate previously applicable (married individual claiming three withholding allowances).

For additional guidance on these requirements, employers should consult the 2018 IRS Publication 15, which was also released yesterday and is consistent with the relief provided in Notice 2018-14.

House Ways and Means Committee Approves Second Amendment to Tax Cuts and Jobs Act

Today, the House Ways and Means Committee approved a new amendment to the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”) offered by Chairman Brady as part of the on-going markup (the “Second Amendment”).  The Committee reported the Bill, as modified by the Brady amendment, on a partisan vote of 24-16.  This marks the second major revision to the Bill and makes changes on top of those contained in the first of which affected provisions related to dependent care assistance programs and deferred compensation (the “First Amendment,” discussed here).  For further information on the Bill, please see our series of posts highlighting provisions of the Bill affecting topics pertinent to our readers, all of which are linked in the final post in this series.

Repeal of Provisions Changing Taxation of Non-qualified Deferred Compensation.  As we discussed in our prior post, Section 3801 of the original Bill text enacted a new Code section 409B and repealed current section 409A, which would have significantly restricted the conditions that qualify as a substantial risk of forfeiture, such that non-qualified deferred compensation would have become taxable immediately unless it was subject to future performance of substantial services.  This restriction was not popular, and Chairman Brady’s amendment would eliminate Section 3801 in its entirety, meaning that current section 409A would continue to apply going forward.

In addition, Chairman Brady’s First Amendment added a new Section 3804 to the Bill that would, through the addition of a new subsection 83(i) to the Code, allow certain employees of privately-held companies the ability to defer income on shares of stock covered by options and restricted stock units (RSUs).  The Second Amendment would clarify that no provision of section 83 applies to RSUs other than section 83(i), meaning that employees cannot make section 83(b) elections with respect to RSUs.

Limited Retention of Exclusion for Employer-Paid Moving Expenses.  As discussed previously, Section 1405 of the Bill would eliminate the exclusion from income and wages available under Code section 132(a)(6) for a qualified moving expense reimbursement.  The Second Amendment would retain this exclusion for members of the U.S. Armed Forces on active duty who move pursuant to military orders.

Ways and Means Committee Approves Amendment to Tax Cuts and Jobs Act

As part of the on-going markup of the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), Chairman Brady of the House Ways and Means Committee introduced a sizeable amendment to the Bill that was approved on Monday evening, affecting the changes made to the exclusion for dependent care assistance programs (DCAP) and introducing a new rule affecting income deferral on privately-held stock options and restricted stock units (RSUs).  We have been releasing a series of posts to highlight the provisions of the Bill affecting the topics pertinent to our readers, all of which are linked in the most recent post in this series.

Elimination of Exclusion for Dependent Care Assistance Programs.  As we explained in Part I of our series on the Bill, under Code section 129, the value of employer-provided DCAP is generally excluded from an employee’s income and wages up to $5,000 per year, and employees frequently take advantage of this exclusion through a dependent care flexible spending account that is part of a cafeteria plan under Code section 125.  Previously, Section 1404 of the Bill would have repealed this exclusion in its entirety, effective for tax years beginning after 2017.  The amendment to Section 1404 of the Bill delays the effective date of this repeal, eliminating the exclusion for tax years beginning after 2022.

New Rules Regarding Income Deferral for Stock Options and Restricted Stock Units Issued by a Privately-Held Corporation.  The amendment added a new Section 3804 to the Bill, which would allow certain employees of privately-held companies the ability to defer income on shares of stock covered by options and RSUs.  Currently, pursuant to Code section 83, the value of shares covered by options without a readily-ascertainable fair market value is includable in income at the time of exercise.  Additionally, they are exempt from taxation under Code section 409A because they are generally not considered deferred compensation when the exercise price equals the fair market value at the time of grant.

Section 3804 of the Bill would add a new subsection 83(i) to the Code, which would allow “qualified” employees to elect to defer income related to stock of a privately-held corporation received upon stock option exercise or RSU settlement by making an election no later than 30 days after the first time the employee’s rights in such stock are transferrable or no longer subject to a substantial risk of forfeiture.  Following such an election, the stock would be includable in income on: (i) the first date the stock becomes transferrable; (ii) the date the recipient first becomes an excluded employee (generally, a 1% owner, an officer, or a highly-compensated employee); (iii) the first date any stock of the corporation becomes readily tradeable on an established securities market; (iv) five years after the earlier of the date the recipient’s rights are not transferable or are not subject to a substantial risk of forfeiture; or (v) the date on which the employee revokes his or her election.  This change to section 83, in conjunction with the fact that the Bill would specifically include stock options within the definition of deferred compensation for purposes of what would be new section 409B (previously discussed here), suggests that Congress may intend to make stock options taxable upon vesting, even if the options do not yet have a readily-ascertainable fair market value.  Another issue raised by this new subsection 83(i) relates to whether section 83(b) elections, which currently permit unvested property to be includable in income in the year of transfer, should be expanded to allow such elections for stock options.  Indeed, section 83(i) seems to envision such a change: the new election provided for under section 83(i) is explicitly barred for any stock options with respect to which an employee has already made a section 83(b) election.

Impact of Tax Cuts and Jobs Act: Part V – Certain Changes Affecting Cross-Border Withholding and Sourcing

Thursday, November 2, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), a bill that, if enacted, would represent the most substantial overhaul of the U.S. tax code in decades.  We are releasing a series of posts to highlight the provisions of the Bill affecting the topics pertinent to our readers, where each post will cover a different area of importance.  Part I of this series covered potential changes to employer-provided benefits, Part II addressed entertainment expenses and other fringe benefits, Part III discussed changes to employee retirement plans, and Part IV covered changes to the Code section 162(m) deduction limitation for executive compensation.  In this Part V, we will discuss the Bill’s potential impact on two cross-border tax issues.

Reduced FIRPTA Withholding Rates.  Under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), gain or loss on the disposition of U.S. real property interests by a nonresident alien individual or foreign corporation is subject to U.S. income tax as though the taxpayer were engaged in a trade or business in the United State and such gain or loss were effectively connected with such trade or business.  Section 1445 applies a withholding mechanism to ensure the payment of any tax due.  When a domestic partnership, trust, or estate disposes of a U.S. real property interest, section 1445 requires that it (or the trustee or executor, in the case of a trust or estate, respectively) withhold 35 percent of the gain realized that is allocable to a foreign person (or allocable to a portion of a trust treated as owned by a foreign person).  Similarly, when a foreign corporation distributes a U.S. real property interest to its shareholders, it must withhold at a rate of 35 percent.  The same withholding rate applies to distributions that are treated as gains or losses from the disposition of a U.S. real property interest allocable to foreign persons from certain domestic entities (such as real estate investment trusts and registered investment companies that would be considered U.S. real property holding corporations if their shares were not publicly traded).  Section 3001 of the Bill, which reduces corporate tax rates in general, includes a corresponding reduction of the FIRPTA tax withholding rate, modifying paragraphs 1445(e)(1), 1445(e)(2), and 1445(e)(6) to require withholding at a 20 percent rate.  The reductions would take effect for tax years beginning after 2017.

Modification to Sourcing Rule for Sales of Inventory Property.  Currently, up to 50 percent of income from the sale of inventory property produced entirely within the United States and sold outside the United States (or vice-versa) can be treated as foreign-source income for purposes of calculating foreign tax credits.  Section 4102 of the Bill would require sales of inventory property to be sourced solely based on the location of production activity with respect to the inventory.  This change would be effective for tax years beginning after 2017.

Impact of Tax Cuts and Jobs Act: Part IV – Changes to the Section 162(m) Deduction Limitation for Executive Compensation

November 3, 2017 by  
Filed under Legislation, Tax Reform

Yesterday, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), a bill that, if enacted, would represent the most substantial overhaul of the U.S. tax code in decades.  We are releasing a series of posts to highlight the provisions of the Bill affecting the topics pertinent to our readers, where each post will cover a different area of importance.  In Part I of this series, we covered potential changes to employer-provided benefits, and in Part II, we addressed entertainment expenses and other fringe benefits.  In Part III, we discussed the Bill’s potential impact on various retirement provisions.  In this Part IV of the series, we address proposed changes to the deduction limitation for executive compensation under Code section 162(m).

Currently, Code section 162 allows as a deduction all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.   This includes a deduction for reasonable compensation for personal services actually rendered.   However, Code section 162(m) limits the deduction of any publicly held corporation with respect to compensation paid to a “covered employee” to $1 million.   However, certain types of compensation—such as qualified performance-based compensation and commissions—are not subject to the deduction limitation.  Covered employees are defined to include the chief executive officer (“CEO”), as of the close of the taxable year and the officers whose compensation is required to be reported to shareholders by reason of being among the three most highly compensated officers for the taxable year (other than the CEO).

Section 3802 of the Bill would amend section 162(m) in three key ways: (1) it would eliminate the exceptions for qualified performance-based pay and commissions; (2) it would extend the deduction disallowance to a broader array of companies; and (3) it would amend the definition of covered employee to more closely align with current SEC disclosure requirements and make covered employee status permanent.

Repeal of Exceptions to Deduction Limitation.  Many public companies pay covered employees primarily in the form of performance-based compensation to avoid the effect of the deduction limitation.  This exception applies to many forms of equity-based compensation— most stock options, stock appreciation rights, restricted stock, and restricted stock units—and many annual and long-term cash incentive compensation plans.  The Bill would repeal Code sections 162(m)(4)(B) and (C), removing the exceptions for performance-based compensation and commissions.  It is unclear whether the repeal of the performance-based pay exception will reverse the trend toward performance-based compensation, given that many shareholders and shareholder advocates believe that performance-based compensation can align shareholder and executive interests.

Expansion of Deduction Limitation to Additional Corporations.  Currently, the deduction limitation applies only to corporations that issue a class of common equity securities required to be registered under section 12 of the Securities Exchange Act of 1934 (the “’34 Act”).  The Bill would amend Code section 162(m)(2) to apply the limitation to any corporation that is an issuer under section 3 of the ’34 Act that (1) has a class of securities registered under section 12 of the ’34 Act or (2) is required to file reports under section 15(d) of the ’34 Act.  This would extend the deduction limitation to corporations beyond those with publicly traded equity securities to include those are required to file reports solely because they issue public debt.

Change to the Definition of Covered Employee.  Code section 162(m)(3) defines covered employee to include the CEO (or the individual acting in such capacity) as of the last day of the tax year and the four officers whose compensation is required to be disclosed to shareholders because the officer is one of the four most highly compensated officers for the tax year.  However, because of a change to the cross-referenced section of the ’34 Act, the IRS interpreted the limitation as applying to only the principal executive officer (generally, the CEO) and the three most highly compensated officers other than the CEO and CFO in Notice 2007-49.  Compensation paid to the CFO was not subject to the deduction limitation regardless of how much he or she was paid.

The Bill would amend the definition of covered employee to align it more closely with current SEC disclosure rules.  Under the Bill, covered employees would include employees who, at any time during the tax year, were the principal executive officer or principal financial officer, and the three officers whose compensation is required to be disclosed to shareholders because they are the three most highly compensated officers during the tax year (other than the principal executive officer).  As a result, the deduction limitation could apply to a variable number officers for any given tax year depending upon whether more than one individual serves as either the principal executive officer or principal financial officer during the tax year and whether the principal financial officer is among the three most highly compensated officers during the tax year.

The Bill would also add a third category of covered employee: individuals who were covered employees of the employer (or any predecessor) for any preceding tax year beginning after December 31, 2016.  Accordingly, the Bill has the effect of making covered-employee status permanent.  Under current law, employees (and former employees) who are no longer officers of the employer as of the last day of the tax year are not covered employees.  As such, the deduction for compensation that is deferred until a date after the employee is no longer a covered employee is not subject to the limitation under Code section 162(m).  The Bill would eliminate this strategy for avoiding the deduction limitation.  Moreover, the Bill specifies that covered-employee remuneration that is includible in the income of, or paid to, someone other than a covered employee, such as a beneficiary of a covered employee after the covered employee’s death, remains subject to the deduction limitation.  Given the changes to the taxation of nonqualified deferred compensation in the Bill (and discussed in Part III of our series), the utility of this strategy for avoiding the deduction limitation would have been greatly reduced even without this amendment.

The amendments to Code section 162(m) would be effective for tax years beginning after December 31, 2017.

Impact of Tax Cuts and Jobs Act: Part III – Changes to Employee Retirement Plans

Yesterday, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), a bill that, if enacted, would represent the most substantial overhaul of the U.S. tax code in decades.  We are releasing a series of posts to highlight the provisions of the Bill affecting the topics pertinent to our readers, where each post will cover a different area of importance.  In Part I of this series, we covered potential changes to employer-provided benefits, and in Part II, we addressed entertainment expenses and other fringe benefits.  In this Part III, we will discuss the Bill’s potential impact on various retirement provisions.

Loosening of Hardship Withdrawal Rules.  Currently, participants in 401(k) plans may only receive hardship withdrawals under certain circumstances, and those withdrawals are limited to the amount of the participants’ elective deferrals.  In addition, participants are prohibited from making elective deferrals to their 401(k) plan for six months following receipt of a hardship distribution.  First, Section 1503 of the Bill would eliminate the six-month prohibition on making elective deferrals after receiving a hardship distribution contained in the current Treasury Regulations.  The provision would require Treasury to revise its regulations within one year of the Bill’s date of enactment to allow participants to continue contributing to their retirement accounts without interruption. Section 1504 of the Bill would add a new subsection 401(k)(14) to the Code expand the funds eligible for hardship withdrawal by permitting participants to make such withdrawals from account earnings and from employer contributions.   This provision, as well as the requisite revised regulations, would apply to tax years beginning after 2017.

Reduction in Minimum Age for In-Service Distributions.  Participants in profit-sharing (including 401(k) plans) and stock purchase plans currently may not take an in-service distribution before age 59½, and participants in other retirement plans (including defined benefit pension plans) are generally barred from taking in-service distributions until age 62.  Section 1502 of the Bill would lower the limit for in-service distributions from plans currently subject to the age 62 limit to age 59½ limit.  This provision would apply to tax years beginning after 2017.

Extension of Time Period for Rollover of Certain Outstanding Plan Loan.  Currently, under Code section 402(c)(3), a participant whose plan or employment terminates while he or she has an outstanding plan loan balance must contribute the loan balance to an individual retirement account (IRA) within 60 days of the termination, otherwise the loan is treated as an impermissible early withdrawal and is subject to a 10% penalty.  Section 1505 of the Bill would add a new subsection 402(c)(3)(C) to the Code to relax these rules by giving such employees until the due date for their individual tax return to contribute the outstanding loan balance to an IRA.  The 10% penalty would only apply after that date.  This provision would apply to tax years beginning after 2017.

Changes to Taxation of Non-qualified Deferred Compensation.  Currently, non-qualified deferred compensation that is subject to a substantial risk of forfeiture is not included in an employee’s income until the year received, and the employer’s deduction is postponed until that date.  By repealing Code section 409A and introducing a new section 409B, Section 3901 of the Bill would significantly restrict the conditions that qualify as a substantial risk of forfeiture, such that non-qualified deferred compensation would become taxable immediately unless it is subject to future performance of substantial services.  This provision would simplify the taxation of non-qualified deferred compensation to align it with the FICA tax timing rules that already applied under Code section 3121(v)(2).  This provision would be effective for amounts attributable to services performed after 2017, though the current rules would apply to existing non-qualified deferred compensation arrangements beginning with the last tax year before 2026.  Notably, the change is substantially identical to one introduced by former Ways & Means Chairman Camp in the past.  It is unclear how the provision in the Bill would apply to some forms of equity-based compensation, such as stock options, which the Bill includes within the definition of non-qualified deferred compensation.  If enacted, the change is likely to trigger a substantial reduction in the use of non-qualified deferred compensation because the resulting accelerated taxation would erode one of the primary purposes of deferring compensation.  Note: This provision was eliminated by the second amendment adopted by the Ways & Means Committee (discussed here).

Impact of Tax Cuts and Jobs Act: Part II – Deduction Disallowances for Entertainment Expenses and Certain Fringe Benefits

Yesterday, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), a bill that, if enacted, would represent the most substantial overhaul of the U.S. tax code in decades.  This is the second in a series of posts discussing the effect of the Bill on topics of interest to our readers.  (See our first post discussing the effect of the Bill on various exclusions for employer-provided benefits here.)  Section 3307 of the Bill makes several changes to the deduction limitations under section 274 related to meals and entertainment expenses.  The Bill also expands the reach of the deduction limitations to disallow deductions for de minimis fringe benefits excluded from income under Code section 132(e), unless the employer includes such amounts in the employee’s taxable income. With respect to tax-exempt entities, section 3308 of the Bill would treat funds used to provide employees transportation fringe benefits and on-premises gyms and other athletic facilities as unrelated business taxable income.

Total Disallowance of Deductions for Entertainment Expenses.  Under Code section 274(a), a taxpayer may not deduct expenses for entertainment, amusement, or recreation (“entertainment expenses”), unless the taxpayer establishes that the item was directly related to the active conduct of the taxpayer’s business, subject to a number of exceptions in Code section 274(e) (e.g., reimbursed expenses; expenses treated as compensation to (or included in the gross income of) the recipient; recreational, social, and similar activities primarily for the benefit of employees other than highly compensated employees; entertainment sold to customers).  If the taxpayer establishes that the entertainment expenses were directly related to the active conduct of its trade or business, section 274(n) limits the deduction to 50 percent of expenses relating to entertainment, subject to a number of exceptions, many of which are the same exceptions that apply to the 100 percent disallowance under Code section 274(a) (e.g., reimbursed expenses; expenses treated as compensation to (or included in the gross income of) the recipient; recreational, social, and similar activities primarily for the benefit of employees other than highly compensated employees; entertainment sold to customer).

The Bill would amend section 274(a) to eliminate the exception for entertainment expenses directly related to the active conduct of the taxpayer’s business.  Accordingly, deductions for entertainment expenses would be fully disallowed unless one of the exceptions under Code section 274(e) applies.  The Bill would also make changes to some of the exceptions under Code section 274(e), described below.

Disallowance of Deductions for On-Site Athletic Facilities.  Similarly, the Bill would fully disallow a deduction for on-site gyms or athletic facilities as defined in Code section 132(j)(4)(B).  Such facilities are gyms and athletic facilities that are located on the premises of the employer, operated by the employer, and substantially all the use of which is by employees of the employer, their spouses, and their dependent children.  Although the Bill would add such expenses to the list of disallowed deductions under Code section 274(a), the Bill does not eliminate the exclusion from employee’s income under Code section 132.  Accordingly, employers will be left to choose between (1) losing the deduction for the cost of such facility or (2) retaining the deduction by imputing the fair market value of the use of the facility to employees. The Bill includes instructions to the Treasury Department to issue regulations providing appropriate rules for allocation of depreciation and other costs associated with an on-site athletic facility.

Disallowance of Deductions for Qualified Transportation Fringes and Parking Facilities.  The Bill would also fully disallow a deduction for qualified transportation fringes as defined in Code section 132(f) and parking facilities used in connection with qualified parking as defined in Code section 132(f)(5)(C).  These fringe benefits are popular with employees and permit employees to either pay for an employee’s public transportation, van pool, bicycle, or parking expenses related to commuting on a pre-tax basis or allow employees to elect to receive a portion of their compensation in the form of non-taxable commuting benefits.  Like with athletic facility expenses, the Bill would add such expenses to the list of disallowed deductions under Code section 274(a), but retain the exclusion from employee’s income under Code section 132.  As a result, employers will be left to choose between (1) losing the deduction for the cost of providing these benefits or (2) discontinuing the benefits.  The Bill includes instructions to the Treasury Department to issue regulations providing appropriate rules for allocation of depreciation and other costs associated with a parking facility.

Disallowance of Deductions for Certain De Minimis Fringe Benefits.  The Bill would likewise disallow deductions for what it refers to as “amenities.”  Amenity is defined as a de minimis fringe benefit that is primarily personal in nature and involving property or services that are not directly related to the taxpayer’s business.  This would seemingly subject expenses related to the provision of most de minimis fringe benefits to a full deduction disallowance unless the expense qualified for one of the exceptions under Code section 274(e) (e.g., expenses for food and beverages (and facilities used in connection therewith) furnished on the business premises of an employer primarily for its employees; reimbursed expenses; expenses treated as compensation to (or included in the gross income of) the recipient; recreational, social, and similar activities primarily for the benefit of employees other than highly compensated employees; items available to the public; entertainment sold to customers).  It would perhaps leave unaffected some de minimis fringe benefits such as personal use of a copy machine.  Even with respect to de minimis fringe benefits that would likely qualify as amenities, it is unclear how much of an impact this would have, because many de minimis fringe benefits would likely qualify for one of the exceptions (for example, coffee, doughnuts, soft drinks, and occasional cocktail parties would likely remain fully deductible under Code sections 274(e)(1) and 274(n)(2)(B), provided they are provided to employees on the business premises of the employer).  Others, however, such as occasional sporting or theater tickets, gifts given on account of illness, and traditional holiday or birthday gifts, may well be affected by the disallowance.  The Bill includes instructions to the Treasury Department to define amenity in regulations.

Deduction Limited to Amounts Actually Included in Income.Code section 274(e)(2) contains an exception to the disallowance under Code section 274(a) to the extent an expense is treated as compensation to an employee.  Code section 274(e)(9) includes a similar provision for expenses treated as includible in the gross income of the recipient that is not an employee of the taxpayer as compensation or as a prize or award.  The Bill would limit the exception for entertainment expenses treated as compensation to (or included in the gross income of) the recipient to the amount actually treated as compensation (or included in gross income of) the recipient as it is with employees that are “specified individuals” under current law.  Code section 274(e)(2)(B) was adopted to impose this limitation with respect to certain senior executives following the decision in Sutherland Lumber-Southwest, Inc. v. Commissioner.  The Bill would extend the effect of Code section 274(e)(2)(B) to all recipients.  The limitation prevents a taxpayer from deducting a cost in excess of the amount required to be included in the recipients income, such as in the case of vacation travel on board corporate aircraft, where the cost of operating the flight often far exceeds the amount required to be included in the employee’s income under Treasury Regulations.

Deduction Disallowance Applies with Respect to Expenses Reimbursed by a Tax-Exempt Entity.  Under section 274(e)(3), a taxpayer that incurs an expense subject to the deduction disallowance in section 274(a) or 274(n) may fully deduct the expense if the expense is reimbursed by another party, provided that certain requirements are met.  The rule allows two parties as part of a reimbursement arrangement to effectively shift the burden of the deduction disallowance to the party between them.   Section 3307 of the Bill amends section 274(e)(3) to prevent the use of tax-exempt entity (that is not affected by the deduction disallowance under current law) to avoid the effect of the disallowance.

Full Deduction for Meals Excluded from Employee’s Income under Code Section 119.  Under Code section 119, the value of meals provided to employees for the convenience of the employer are excludable from the employee’s income.  Such meals, however, are currently subject to the 50% deduction disallowance under Code section 274(n) unless the meals are treated as being provided at an employer-operated eating facility that is a de minimis fringe benefit under Treasury Regulation § 1.132-7.  (This was the issue in the Boston Bruins decision (earlier coverage).)  Running counter to the general approach of the legislation—which seeks to eliminate corporate deductions for amounts not included in employee income—the Bill would amend Code section 274(n)(2)(B) include meals excludable from an employee’s income under section 119 in addition to amounts being excludable under section 132(e).  This change would appear to expand the ability of employer’s to fully deduct more meals provided to their employees.

With the exception of the last change, the Bill would seek to limit the ability of taxpayers to deduct entertainment expenses and expenses related to the provision of various excludable fringe benefits.  The provisions would be effective for amounts paid or incurred after December 31, 2017.

Impact of Tax Cuts and Jobs Act: Part I – Exclusions for Certain Employer-Provided Benefits

Today, the House Ways and Means Committee released the Tax Cuts and Jobs Act (H.R. 1) (the “Bill”), a bill that, if enacted, would represent the most substantial overhaul of the U.S. tax code in decades.  We will release a series of posts to highlight the provisions of the Bill affecting the topics pertinent to our readers, where each post will cover a different area of importance.  In the first of this series of posts, we will discuss the Bill’s potential impact on the exclusions for several popular employer-provided benefits.

Limitation on Exclusion for Employer-Provided Meals and Lodging. Under Code section 119 as currently written, the value of employer-provided housing is excludable from an employee’s gross income and is not considered to be wages for purposes of employer withholding.  Section 1401 of the Bill would add a new subsection (e) to Code section 119 to limit the income exclusion for employer-provided housing to $50,000 ($25,000 for a married individual filing a joint return), and that amount would phase out for highly compensated individuals.  Presumably, this change would obligate employers to report the fair market value of employer-provided housing on an employee’s Form W-2 even if excludable under Code section 119, and the employee would take the exclusion on his or her individual income tax return.  In addition, the exclusion would be limited to a single residence for all employees, and the exclusion would be altogether eliminated for 5 percent owners of the employer.

Elimination of Exclusion for Dependent Care Assistance Programs. Under Code section 129, the value of employer-provided dependent care assistance programs (“DCAP”) is generally excluded from an employee’s income and wages up to $5,000 per year.  Employees typically take advantage of this exclusion through a dependent care flexible spending account that is part of a cafeteria plan under Code section 125.  Section 1404 of the Bill would repeal this exclusion in its entirety. Note: This provision was eliminated from the bill by an amendment adopted by the Ways and Means Committee (discussed here).

Educational Assistance Programs and Qualified Tuition Reductions. Two benefits primarily focused on assisting employees with educational expenses would be eliminated by the Bill.  First, under Code section 127, amounts paid to or on behalf of an employee under a qualified educational assistance program are excluded from an employee’s income and wages up to $5,250 per year.  Section 1204 of the Bill would repeal this exclusion in its entirety.  Second, the exclusion from income and wages for qualified tuition reductions provided by educational institutions would also be repealed by Section 1204.  Though this change would affect fewer employers, it would eliminate an often-significant benefit for employees who work for educational institutions, as they would be taxed on the full amount of tuition waived for them or their spouses or dependents to attend the educational institution.

Elimination of Exclusion for Adoption Assistance Programs. Currently, Code section 137 provides an exclusion from an employee’s income and wages for amounts provided by an employer to an employee for amounts paid or expenses incurred for the adoption of a child up a certain amount that is indexed for inflation ($13,570 in 2017).  Section 1406 of the Bill would repeal the exclusion.

Elimination of Exclusion for Employer-Paid Moving Expenses. Code section 132(a)(6) provides an exclusion from income and wages for a qualified moving expense reimbursement, which is an employer-provided benefit capped at the amount deductible by the individual if he or she directly paid or incurred the cost.  Section 1405 of the Bill would repeal this exclusion.

Exclusion for Employee Achievement Awards. Code section 74(c) excludes the value of certain employee achievement awards given in recognition of an employee’s length of service or safety achievement from the employee’s income. Section 274(j) limits an employer’s deduction for employee achievement awards for any employee in any year to $1,600 for qualified plan awards and $400 otherwise. A qualified plan award is an employee achievement award that is part of an established written program of the employer, which does not discriminate in favor of highly compensated employees, and under which the average award (not counting those of nominal value) does not exceed $400.  The exclusion under Code section 74(c) is limited to the amount that the employer is permitted to deduct for the award.  Section 1403 of the Bill would repeal this exclusion and the corresponding deduction limitation.

All of these changes would be effective for tax years beginning after 2017.  In addition to the employer-provided benefits discussed in this post, the Bill would affect a number of other topics covered by this Blog, so stay tuned for Part II in the series.