On February 21, 2008, the IRS issued Rev. Rul. 2008-13. It states that provisions in employment agreements providing for the accelerated vesting of performance based awards upon the termination of an executive by the company without cause or for good reason, or voluntary retirement, does not meet the performance-based exception of § 162(m). The Ruling's impact is that executive bonus plans or agreements containing such provisions are ineligible for the performance-based exception. Rev. Rul. 2008-13 is a reversal of the IRS's previous position.  Therefore, companies will have to alter their executive bonus plans and agreements that contain these provisions.

This Article explores the impact and provides a critique of Rev. Rul. 2008-13. Part II discusses the taxation of executive compensation prior to the enactment of § 162(m) and the reasons for the enactment of this Section. Part III provides an overview of § 162(m) and discusses three Private Letter Rulings issued in connection with this change in tax law. Part IV summarizes Rev. Rul. 2008-13 and discusses its implications, including drafting measures that companies can take to comply with the Ruling. Part V analyzes the Ruling and suggests that the IRS should have taken a different position regarding termination by the company without cause and termination by the employee of his or her own employment for good reason, but that it was correct in finding that voluntary retirement does not meet the performance-based exception of § 162(m). Part VI is a conclusion.