Tax Facts

3523 / Did the TARP program place any limitations on the deductibility of executive compensation of program recipients?

The Emergency Economic Stabilization Act of 2008 added new rules to limit the deductibility of compensation paid to certain executives of companies participating in the federal government’s Troubled Assets Relief Program (“TARP”).1 These companies generally may not deduct more than $500,000 in compensation, including deferred compensation.2

In effect, the compensation in excess of the limit is taxed twice. It is taxed once when the employee pays tax on the compensation, and it is taxed again to the extent the employer cannot deduct the compensation in excess of the limitation. Most large recipients under the program have sought to make their reimbursement of advances under the program to remove these special deduction limitations.

1. As of June 2023, there were 991 recipient organizations under the TARP program originally, see “Bailout Recipients” on ProPublica website at https://projects.propublica.org/bailout/list/index for a list and current status of the recipients under the program.

2. IRC § 162(m)(5), as added by EESA 2008.

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