Proskauer’s 23rd Annual Trick or Treat Seminar was held on Wednesday, October 31.

The Seminar discussed:

  • Sexual Harassment in the #MeToo Era
  • Taxing Times for Tax-Exempt Organizations: The Impact of Tax Reform on Executive Compensation and Employee Benefits for Tax Exempt Organizations
  • Recent, Spooky Tax Changes Affecting the UBTI Rules

Amanda Nussbaum welcomed everyone and briefly discussed the five major trends impacting tax-exempt organizations today, including the general impact of the Tax Cuts and Jobs Act (the “Act”), and introduced the presenters.

Here are some key points from each presentation:

Harris Mufson discussed the impact that the #MeToo movement has had on employers.  For example, employers in New York are required to conduct annual, interactive sexual harassment training for all employees and must update their policies and procedures to ensure compliance with new regulatory requirements.  Harris also addressed practical solutions to handling sexual harassment complaints and suggested various proactive measures to mitigate against the risk of such claims, including evaluating hiring processes, changes to employment agreements, assessing the organization’s culture through surveys and increasing focus and attention on diversity and inclusion initiatives. For up to date information on the employment impact of the #MeToo movement and other employment issues, visit our Law and the Workplace blog.

Steven Einhorn discussed the impact that the Act has on executive compensation and employee benefits, particularly as it relates to tax-exempt organizations.  Steven first discussed that, as a result of the addition of new Section 4960 to the Internal Revenue Code of 1986, as amended (the “Code”), many tax-exempt organizations will now face an excise tax for certain compensation payments that will increase the cost for organizations to attract and retain top talent.  Generally, Code Section 4960 imposes a 21% excise tax on annual compensation in excess of $1 million that is paid to a tax-exempt organization’s covered employees.  Code Section 4960 also imposes a 21% excise tax on certain “parachute payments” (payments that are contingent upon a covered employee’s termination of employment).  Steven then discussed the impact that the Act has on retirement plans, focusing on changes to the hardship distribution rules under the Act and also under the Bipartisan Budget Act of 2018, the increased time that a participant has to roll over a “loan offset,” and the ability certain retirement plans had to permit participants who experienced an economic loss due to certain federally declared disasters that occurred in 2016 to take special disaster distributions.

Amy Zelcer discussed the rules governing unrelated business taxable income (“UBTI”) generally and provided an overview of the two major changes to these rules implemented by the Act. First, she discussed the new rule which requires tax-exempt organizations to include as UBTI, amounts paid or incurred for certain employee fringe benefits, including qualified transportation benefits, parking facilities used in connection with qualified parking, and on-premises athletic facilities. Second, she discussed the new rules and recent IRS guidance requiring tax-exempts to separately compute UBTI for each trade or business activity conducted (rather than on an aggregate basis as under previous law). Finally, Amy discussed the overall expected impact of these changes on tax-exempt organizations and highlighted certain open questions left unanswered by the statute and existing guidance.