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American Family Plan—Summary of Certain Key Tax Components

On Wednesday April 28, 2021, President Joseph R. Biden announced the American Families Plan, designed to expand access to education, child care, and health care, among other initiatives. The White House released a fact sheet outlining the plan, and Biden detailed the plan in an address to Congress. The American Families Plan would be funded by increasing tax enforcement on corporations and high-income taxpayers, enforcement of which would be supported by newly enhanced information reporting from financial institutions. The initiatives would also be funded by raising taxes on high-income taxpayers, including (i) increasing the top income tax rate to 39.6% from 37%, (ii) increasing the capital gains rate to 39.6% from 20% for those earning $1 million or more, (iii) eliminating a step-up in basis for gains in excess of $1 million, (iv) eliminating the carried interest loophole, (v) eliminating the special real estate tax break on gains greater than $500,000, (vi) extending the limitation that restricts excess business losses, (vii) and ensuring those making over $400,000 pay the same consistent 3.8% Medicare tax. These proposals are summarized in this Alert.

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Section 162(m) Reminder: Shareholders May Need to Reapprove Certain Compensation Plans Every Five Years


Time to Read: 1 minutes Practices: Tax

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Section 162(m) of the Internal Revenue Code limits to $1 million the deduction that certain publicly held corporations may claim in any year for compensation to the CEO or any of the three most highly paid named executive officers other than the CEO or the CFO. An important exception makes the deduction limitation inapplicable to “performance-based” compensation under qualifying shareholder-approved plans.

The Section 162(m) regulations require that, where an arrangement depends upon the achievement of specific performance goals set by the compensation committee from among performance criteria approved by the shareholders, the material terms of the arrangement—including the performance criteria—must be disclosed to and reapproved by the corporation’s shareholders not less frequently than every five years.

Corporations should review their plans intended to qualify for the performance-based exception from Section 162(m) to determine if shareholder action needs to be taken in an upcoming proxy season. For companies that had performance-based plans approved in 2005, the disclosure and reapproval would generally need to occur this year (2010). 

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The rules under Section 162(m) are detailed and complex, and the above reminder relates to only one of the many potentially applicable rules. If you have any questions regarding Section 162(m), please contact one of the attorneys listed above, any member of the Tax & Benefits Department or your usual Ropes & Gray advisor.

 

CIRCULAR 230 DISCLOSURE:
To ensure compliance with Treasury Department regulations, we inform you that any U.S. tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. tax-related penalties or promoting, marketing or recommending to another party any tax-related matters addressed herein.

 



 

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