PDF document

- 1 -

Userid: CPM Schema: Leadpct: 100% Pt. size: 10 Draft Ok to Print
instrx
AH XSL/XML Fileid: … s/I1125E/201810/A/XML/Cycle06/source (Init. & Date) _______

Page 1 of 2 14:13 - 29-Oct-2018

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Department of the Treasury
Internal Revenue Service
Instructions

for Form 1125-E

(Rev. October 2018)

(Use with the October 2016 revision of Form 1125-E.)
Compensation of Officers

Section references are to the Internal Revenue Code Golden Parachute Payments
unless otherwise noted. A portion of the payments made by a corporation to key
personnel that exceeds their usual compensation may not
Future Developments
be deductible. This occurs when the corporation has an
For the latest information about developments related to agreement (golden parachute) with these key employees
Form 1125-E and its instructions, such as legislation to pay them these excess amounts if control of the
enacted after they were published, visit IRS.gov/ corporation changes. See section 280G and Regulations
Form1125E. section 1.280G-1.

What’s New Disallowance of Deduction for Employee
Limitations on compensation. Compensation in Excess of $1 Million
For tax years beginning after 2017, for purposes of the Publicly held corporations cannot deduct compensation to
deduction for employee compensation in excess of $1 a “covered employee” to the extent that the compensation
million, the definition of "covered employee" has changed. exceeds $1 million. Generally, a covered employee is:
Other special rules also apply. See Disallowance of • The principal executive officer or principle financial
Deduction for Employee Compensation in Excess of $1 officer of the corporation (or an individual acting in that
Million, later. capacity) at any time during the tax year;
• An employee whose total compensation must be
reported to shareholders under the Securities Exchange
General Instructions Act of 1934 because the employee is among the three
highest compensated officers for that tax year (other than
Purpose of Form the principal executive officer or principal financial officer,
Certain entities with total receipts of $500,000 or more use or an individual acting in that capacity); or
Form 1125-E to provide a detailed report of the deduction • A covered employee of the corporation (or any
for compensation of officers. predecessor) for any preceding tax year beginning after
December 31, 2016.
Who Must File
Form 1125-E must be completed and attached to Form For this purpose, compensation does not include the
1120, 1120-C, 1120-F, 1120-RIC, 1120-REIT, or 1120S, if following.
the entity has total receipts (defined below) of $500,000 or • Income from certain employee trusts, annuity plans, or
more, and deducts compensation for officers. pensions.
• Any benefit paid to an employee that is excluded from
Definitions and Special Rules the employee's income.
The following also apply.
Total Receipts • The deduction limit does not apply to income payable
For purposes of Form 1125-E, total receipts are under a written, binding contract in effect on February 17,
determined as follows. 1993.
• Form 1120, page 1, line 1a, plus lines 4 through 10. • The $1 million limit is reduced by amounts disallowed
• Form 1120-C, page 1, line 1a, plus lines 4 through 9. as excess parachute payments under section 280G.
• Form 1120-F, Section II, line 1a, plus lines 4 through 10. • Special rules apply to binding written contracts in effect
• Form 1120-RIC, Part I, line 8, plus net capital gain from on November 2, 2017, and which were not materially
Part II, line 1, and Form 2438, line 9a. modified on or after that date.
• Form 1120-REIT, Part I, line 8, plus net capital gain
See section 162(m), as modified by P.L. 115-97.
from Part III, line 10, and Form 2438, line 9a.
• Form 1120S, page 1, line 1a, plus lines 4 and 5; income Limitations on tax benefits for executive compensa-
reported on Schedule K, lines 3a, 4, 5a, and 6; income or tion under the Treasury Troubled Asset Relief Pro-
net gain reported on Schedule K, lines 7, 8a, 9, and 10; gram (TARP). The $1 million compensation limit is
and income or net gain reported on Form 8825, lines 2, reduced to $500,000 for executive remuneration and
19, and 20a. deferred deduction executive remuneration paid to
covered executives by any entity that receives or has
For more information on total receipts, see the received financial assistance under TARP. The limit
instructions for the applicable entity’s return. applies for each period in which obligations arising from

Oct 29, 2018 Cat. No. 57670C

- 2 -

Page 2 of 2 Fileid: … s/I1125E/201810/A/XML/Cycle06/source 14:13 - 29-Oct-2018

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

financial assistance under TARP remain outstanding. The sold, elective contributions to a section 401(k) cash or
$500,000 is reduced by any amounts disallowed as deferred arrangement, or amounts contributed under a
excess parachute payments. See section 162(m)(5) for salary reduction SEP agreement or a SIMPLE IRA plan.
definitions and other special rules. Also see Notice
If the corporation claims a credit for any wages paid or
2008-94, 2008-44 I.R.B. 1070, for additional guidance.
incurred, it may need to reduce its deduction for officers’
In addition, any excess parachute payments made to a compensation. See section 280C. If the corporation
covered executive by an applicable employer participating provided taxable fringe benefits to its officers, such as
in a Treasury TARP are not deductible as compensation if personal use of a car, do not deduct as wages the amount
the payments are made because of a severance from allocated for depreciation and other expenses claimed
employment during an applicable tax year. For this elsewhere on the return.
purpose, a parachute payment is any payment to a senior
executive officer for departure from a company for any Line 4
reason, except for payments for services performed or Enter the amount from line 4 on Form 1120, page 1,
benefits accrued. These limits do not apply to a payment line 12, or the appropriate line of the applicable return.
already treated as a parachute payment. See section See the instructions for the applicable entity's return.
280G(e) and Notice 2008-94.
Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
Specific Instructions laws of the United States. You are required to give us the
Line 1 information. We need it to ensure that you are complying
with these laws and to allow us to figure and collect the
Complete columns (a) through (f) for all officers. A right amount of tax.
corporation determines who is an officer under the laws of
the state/country where it is incorporated. You are not required to provide the information
If a consolidated return is filed, this information must be requested on a form that is subject to the Paperwork
furnished for each officer of the affiliated group. However, Reduction Act unless the form displays a valid OMB
the common parent of a consolidated group may file, as control number. Books or records relating to a form or its
part of its consolidated return, one Form 1125-E on behalf instructions must be retained as long as their contents
of the members of the affiliated group. may become material in the administration of any Internal
Revenue law. Generally, tax returns and return
Column (b). Enter each officer's social security number information are confidential, as required by section 6103.
(SSN) in column (b). Filers may elect to provide only the
last four digits of the officer's SSN. The time needed to complete and file this form will vary
depending on individual circumstances. The estimated
Column (f). Enter each officer's total deductible burden for business taxpayers filing this form is approved
compensation (such as salaries, commissions, bonuses, under OMB control number 1545-0123 and is included in
taxable fringe benefits, etc.). For officers of an S the estimates shown in the instructions for their business
corporation, include fringe benefits and expenditures income tax return.
made on behalf of officers owning more than 2% of the
corporation's stock. Do not include amounts paid or If you have comments concerning the accuracy of
incurred for fringe benefits of officers owning 2% or less of these time estimates or suggestions for making this form
an S corporation's stock. These amounts are reported simpler, we would be happy to hear from you. See the
elsewhere on the corporation's return. See the instructions for the tax return with which this form is filed.
Instructions for Form 1120S for more information on
deductible officers’ compensation.

Line 3
Enter compensation of officers deductible elsewhere on
the return, such as amounts included in cost of goods

-2-

PDF file checksum: 3756004251

(Plugin #1/8.13/12.0)