Employee Compensation Guidance for Tax Exempt Organizations


Interim Guidance for Excise Tax on Excess Remuneration and Parachute Payments

The IRS has issued interim guidance on the excise tax payable by tax-exempt organizations on remuneration in excess of $1 million and any excess parachute payments made to certain highly compensated current and former employees in the tax year. The excise tax imposed by Internal Revenue Code (IRC) Section 4960 is equal to the maximum corporate tax rate on income (currently 21%).

Q&A on IRC Section 4960

The current guidance is contained in a Question-and-Answer format. The interim guidance addresses:

  • general application of IRC Section 4960;
  • applicable tax-exempt organizations and related organizations;
  • covered employees;
  • excess remuneration;
  • medical and veterinary services;
  • excess parachute payments;
  • three-times-base-amount test for parachute payments;
  • computation of excess parachute payments;
  • reporting liability under IRC Section 4960;
  • miscellaneous issues; and
  • the effective date.

Reliance

The IRS intends to issue proposed regulations under IRC Section 4960, which will incorporate the interim guidance. Until future guidance is issued, taxpayers may rely on the rules in the interim guidance from December 22, 2017. Any future guidance will be prospective and will not apply to tax years beginning before the guidance is issued. Until additional guidance is issued, taxpayers may base their positions upon a good faith, reasonable interpretation of the statute and legislative history, where appropriate. Specifically, the positions reflected in the guidance constitute a good faith and reasonable interpretation.

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES.

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