Does anyone have any thought what definition the IRS is looking toward when it uses the term "going concern" in the final regulations?

Payment would violate a loan covenant and create an event of default is an example, I think.

This provision was in the proposed regulations but was removed in the final regulations becuase the IRS was afraid that people would be able to game the system by creating illegitimate loan covenants in order to create and accelerated payment trigger.

I knew that was in the proposed regs, but I don't remember reading or hearing that this was the reason. My recollection was that based on the comments they decided to broaden the exception. In any event, a perfectly legitimate covenant that does not involve gamesmanship will satisfy the "going concern" standard, in my view.

I agree that violation of a legitimate covenant would indicate that there may be a going concern issue; however, if you read the preamble to the final regulations, you will see that the IRS specifically mentions that violation of a loan covenant by itself was not adopted in the final regulations.

I think your putting the wrong spin on the preamble. While it's true that a violation of a loan covenant does not automatically satisfy the "going concern" requirement, that wasn't true under the proposed regs either. Under the proposed regs., the violation of a loan covenant was one of only two specific exceptions, the other being a "similar contract," but in both cases the violation would have to cause material harm to the service recipient. The final regs. replaces these two specific exceptions with the general "going concern" exception, but there is nothing in the preamble to suggest that the standard vis a vis loan covenant violations is any more rigid than it was under the proposed regulations. In any event, if the loan covenant isn't a sham, I seriously doubt the IRS would ever question the application of the going concern exception if the payment of the deferred comp. would truly result in a breach of the loan covenant.