Form 1125-E, Compensation of Officers

PAGER/XML

Userid: SD_B95NB
Fileid:

DTD instrx

Leadpct: 0%

Pt. size: 10

...2011 Products\i1125-E Compensation of Officers\I1125E 09142011.xml

Page 1 of 2 Instructions for Form 1125-E

❏

Draft

❏

Ok to Print

(Init. & date)

14:43 - 14-SEP-2011

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

Instructions
for Form 1125-E

Department of the Treasury
Internal Revenue Service

(December 2011)

Compensation of Officers
Section references are to the Internal Revenue Code unless
otherwise noted.

General Instructions
Purpose of Form
Certain entities with total receipts of $500,000 or more
use Form 1125-E to provide a detailed report of the
deduction for compensation of officers.

Who Must File
Form 1125-E must be completed and attached to Form
1120, 1120-C, 1120-F, or 1120-RIC, if the entity deducts
compensation for officers and has total receipts (defined
below) of $500,000 or more.

Definitions and Special Rules
Total Receipts
For purposes of Form 1125-E, total receipts are
determined as follows:
• Form 1120, page 1, line 1c plus lines 4 through 10;
• Form 1120-F, page 3, Section II, line 1c plus lines 4
through 10;
• Form 1120-C, page 1, line 1c plus lines 4 through 9;
• Form 1120-RIC, Part I, line 8 plus net capital gains
from Part II, line 1, and Form 2438, line 9a.

Golden Parachute Payments
A portion of the payments made by a corporation to key
personnel that exceeds their usual compensation may
not be deductible. This occurs when the corporation has
an agreement (golden parachute) with these key
employees to pay them these excess amounts if control
of the corporation changes. See section 280G and
Regulations section 1.280G-1.

Disallowance of Deduction for Employee
Compensation in Excess of $1 Million
Publicly held corporations cannot deduct compensation
to a “covered employee” to the extent that the
compensation exceeds $1 million. Generally, a covered
employee is:
• The principal executive officer of the corporation (or an
individual acting in that capacity) as of the end of the tax
year or
• An employee whose total compensation must be
reported to shareholders under the Securities Exchange
Act of 1934 because the employee is among the three
highest compensated officers for that tax year (other than
the principal executive officer).
For this purpose, compensation does not include the
following.
• Income from certain employee trusts, annuity plans, or
pensions.
Sep 14, 2011

• Any benefit paid to an employee that is excluded from

the employee’s income.
The deduction limit does not apply to:
• Commissions based on individual performance,
• Qualified performance-based compensation, and
• Income payable under a written, binding contract in
effect on February 17, 1993.
The $1 million limit is reduced by amounts disallowed
as excess parachute payments under section 280G.
See section 162(m) and Regulations section 1.162-27.
Also see Notice 2007-49, 2007-25 I.R.B. 1429.
Limitations on tax benefits for executive
compensation under the Treasury Troubled Asset
Relief Program (TARP). The $1 million compensation
limit is reduced to $500,000 for executive remuneration
and deferred deduction executive remuneration paid to
covered executives by any entity that receives or has
received financial assistance under TARP. The limit
applies for each period in which obligations arising from
financial assistance under TARP remain outstanding.
The $500,000 is reduced by any amounts disallowed as
excess parachute payments. See section 162(m)(5) for
definitions and other special rules. Also see Notice
2008-94, 2008-44 I.R.B. 1070, for additional guidance.
In addition, a portion of any parachute payments made
to a covered executive by an applicable employer
participating in a Treasury troubled asset relief program
is not deductible as compensation if the payments are
made because of a severance from employment during
an 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
a parachute payment. See section 280G(e) and Notice
2008-94.

Specific Instructions
Line 1
Complete columns (a) through (f), for all officers. Enter
each officer’s total deductible compensation. Who is an
officer is determined under the laws of the state/country
where it is incorporated.
If a consolidated return is filed, each member of an
affiliated group must furnish this information.

Line 3
Enter compensation of officers deductible elsewhere on
the return, such as amounts included in cost of goods
sold, elective contributions to a section 401(k) cash or
deferred arrangement, or amounts contributed under a
salary reduction SEP agreement or a SIMPLE IRA plan.

Cat. No. 57670C

Page 2 of 2 Instructions for Form 1125-E

14:43 - 14-SEP-2011

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

If the corporation claims a credit for any wages paid or
incurred, it may need to reduce its deduction for officer’s
compensation. See Section 280C. If the corporation
provided taxable fringe benefits to its officers, such as
personal use of a car, do not deduct as wages the
amount allocated for depreciation and other expenses
claimed elsewhere on the return.

Reduction Act unless the form displays a valid OMB
control number. Books or records relating to a form or its
instructions must be retained as long as their contents
may become material in the administration of any Internal
Revenue law. Generally, tax returns and return
information are confidential, as required by section 6103.
The time needed to complete and file the following
form will vary depending on individual circumstances.
The estimated average time is: Recordkeeping, XX hr ,
XX min, Learning about the law or the form, XX hr., XX
min, Preparing and sending the form to the IRS, XX hr.,
XX min.
If you have comments concerning the accuracy of
these time estimates or suggestions for making this form
simpler, we would be happy to hear from you. See the
instructions for the tax return with which this form is filed.

Line 4
Enter the amount from line 4 on Form 1120, page 1, line
12 or the appropriate line of the applicable return. See
the instructions for the applicable return.
Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
laws of the United States. You are required to give us the
information. We need it to ensure that you are complying
with these laws and to allow us to figure and collect the
right amount of tax.
You are not required to provide the information
requested on a form that is subject to the Paperwork

-2-

Version A, Cycle 3

Form

1125-E

Compensation of Officers

(December 2011)

▶

Department of the Treasury
Internal Revenue Service

OMB No. 1545-XXXX

Attach to Form 1120, 1120-C, 1120-F, 1120-RIC.
▶ See separate instructions.

Employer identification number

Name

Note. Complete Form 1125-E only if total receipts are $500,000 or more. See instructions for definition of total receipts.
(a) Name of officer

(c) Percent of
time devoted to
business

(b) Social security number

1

Percent of stock owned
(d) Common

(e) Preferred

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

DRAFT AS OF
July 14, 2011

2

Total compensation of officers .

.

.

.

.

.

.

.

.

.

2

3

Compensation of officers claimed on Form 1125-A or elsewhere on return

.

.

.

.

.

.

.

.

3

4

Subtract line 3 from line 2. Enter the result here and on Form 1120, page 1, line 12 or the
appropriate line of your tax return . . . . . . . . . . . . . . . . . . . . . .

4

.

.

.

.

.

.

.

For Paperwork Reduction Act Notice, see separate instructions.

.

.

.

.

.

.

Cat. No. 55989C

(f) Amount of
compensation

Form 1125-E (12-2011)