Department of the Treasury

Instructions

for Form 1125-E

Department of the Treasury

Internal Revenue Service

(Rev. October 2018)

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

Compensation of Officers

Golden Parachute Payments

Section references are to the Internal Revenue Code

unless otherwise noted.

Future Developments

For the latest information about developments related to

Form 1125-E and its instructions, such as legislation

enacted after they were published, visit IRS.gov/

Form1125E.

What’s New

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

Limitations on compensation.

For tax years beginning after 2017, for purposes of the

deduction for employee compensation in excess of $1

million, the definition of "covered employee" has changed.

Other special rules also apply. See Disallowance of

Deduction for Employee Compensation in Excess of $1

Million, later.

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

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 or principle financial

officer of the corporation (or an individual acting in that

capacity) at any time during the tax year;

• 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 or principal financial officer,

or an individual acting in that capacity); or

• A covered employee of the corporation (or any

predecessor) for any preceding tax year beginning after

December 31, 2016.

Definitions and Special Rules

For this purpose, compensation does not include the

following.

• Income from certain employee trusts, annuity plans, or

pensions.

• Any benefit paid to an employee that is excluded from

the employee's income.

Total Receipts

• The deduction limit does not apply to income payable

Form 1125-E must be completed and attached to Form

1120, 1120-C, 1120-F, 1120-RIC, 1120-REIT, or 1120S, if

the entity has total receipts (defined below) of $500,000 or

more, and deducts compensation for officers.

The following also apply.

For purposes of Form 1125-E, total receipts are

determined as follows.

• Form 1120, page 1, line 1a, plus lines 4 through 10.

• Form 1120-C, page 1, line 1a, plus lines 4 through 9.

• Form 1120-F, Section II, line 1a, plus lines 4 through 10.

• Form 1120-RIC, Part I, line 8, plus net capital gain from

Part II, line 1, and Form 2438, line 9a.

• Form 1120-REIT, Part I, line 8, plus net capital gain

from Part III, line 10, and Form 2438, line 9a.

• Form 1120S, page 1, line 1a, plus lines 4 and 5; income

reported on Schedule K, lines 3a, 4, 5a, and 6; income or

net gain reported on Schedule K, lines 7, 8a, 9, and 10;

and income or net gain reported on Form 8825, lines 2,

19, and 20a.

For more information on total receipts, see the

instructions for the applicable entity’s return.

Oct 29, 2018

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.

• Special rules apply to binding written contracts in effect

on November 2, 2017, and which were not materially

modified on or after that date.

See section 162(m), as modified by P.L. 115-97.

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

Cat. No. 57670C

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.

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, any excess parachute payments made to a

covered executive by an applicable employer participating

in a Treasury TARP are 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.

If the corporation claims a credit for any wages paid or

incurred, it may need to reduce its deduction for officers’

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.

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 entity's 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.

Specific Instructions

Line 1

Complete columns (a) through (f) for all officers. A

corporation determines who is an officer under the laws of

the state/country where it is incorporated.

If a consolidated return is filed, this information must be

furnished for each officer of the affiliated group. However,

the common parent of a consolidated group may file, as

part of its consolidated return, one Form 1125-E on behalf

of the members of the affiliated group.

You are not required to provide the information

requested on a form that is subject to the Paperwork

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.

Column (b). Enter each officer's social security number

(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

burden for business taxpayers filing this form is approved

under OMB control number 1545-0123 and is included in

the estimates shown in the instructions for their business

income tax return.

Column (f). Enter each officer's total deductible

compensation (such as salaries, commissions, bonuses,

taxable fringe benefits, etc.). For officers of an S

corporation, include fringe benefits and expenditures

made on behalf of officers owning more than 2% of the

corporation's stock. Do not include amounts paid or

incurred for fringe benefits of officers owning 2% or less of

an S corporation's stock. These amounts are reported

elsewhere on the corporation's return. See the

Instructions for Form 1120S for more information on

deductible officers’ compensation.

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 3

Enter compensation of officers deductible elsewhere on

the return, such as amounts included in cost of goods

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