A
new
ruling
from
the
IRS
(Rev.
Rul.
2012-19)
addresses
when
dividends
and
dividend-equivalents
paid
to
an
employee
in
connection
with
restricted
stock
or
restricted-stock
units
(RSUs)
will
qualify
as
performance-based
compensation
for
purposes
of
the
deduction
limitation
under
Code
Section
162(m).
Note.
This
ruling
is
of
particular
relevance
to
publicly
traded
companies.
They
are
limited
by
Code
Section
162(m)
in
their
ability
to
deduct
compensation
paid
to
a
"covered
employee,"
unless
the
compensation
is
qualifying
performance-based
compensation.
The
ruling
concludes
that
rights
to
dividends
and
dividend-equivalents
must
be
analyzed
separately
from
the
underlying
restricted
stock
or
RSUs
to
determine
whether
they
qualify
as
performance-based
compensation.
For
example,
if
an
employee
is
granted
restricted
stock
that
qualifies
as
performance-based
compensation
but
is
also
given
the
right
to
receive
dividends
with
respect
to
the
restricted
stock
without
regard
to
whether
the
performance
conditions
are
satisfied
with
respect
to
the
restricted
stock,
the
dividends
will
not
qualify
as
performance-based
compensation
and
will
be
subject
to
the
deduction
limitation
under
Section
162(m).
But
if
the
arrangement
provides
that
the
dividends
will
be
accumulated
and
paid
to
the
employee
only
if
and
when
the
performance-based
conditions
on
the
restricted
stock
are
satisfied,
the
dividends
also
will
qualify
as
performance-based
compensation.