The proposed regulations provide that the plan under which the option or right is granted must specify the maximum number of shares with respect to which options or rights may be granted to any individual employee during a specified period. Accordingly, if a plan states an aggregate maximum number of shares that may be granted but does not contain a specific per-employee limitation on the number of options that may be granted, then any compensation attributable to the stock options or rights granted under the plan is not qualified performance-based compensation under the Code.
A plan satisfies the Code where the terms of the plan specify that an individual employee may be granted options or rights to receive the maximum number of shares authorized under the plan during a specified period.
In addition, the proposed regulations provide that the requirement for description of compensation is satisfied where the maximum number of shares for which grants may be made to each individual employee during a specified period and the exercise price of those options is disclosed to the shareholders of the corporation.
As for compensation payable under restricted stock units paid by companies that become publicly held, the proposal says only compensation attributable to stock options, stock appreciation rights, and restricted property is covered under § 1.162–27(f)(3) of the Code. The proposed regulations clarify that the general rule of § 1.162–27(f)(1) applies to all compensation other than compensation specifically identified in § 1.162–27(f)(3).
The IRS is requesting comment by September 22.
The proposed regulations are here.