On July 1, 2021, the Supreme Court struck down a California donor-disclosure law as facially unconstitutional in its decision in Americans for Prosperity Foundation v. Bonta.[1] The law required nonprofits operating or soliciting contributions in California to disclose to the Attorney General of California information about all of its donors who contribute more than $5,000 each year (generally, through a requirement that nonprofits submit a copy of their Schedule Bs from their IRS Form 990s).[2] The decision clarified the rules applicable to disclosure requirements with respect to the First Amendment, and while the decision itself addressed nonprofit disclosures, its scope could stretch significantly beyond this area.
Final Regulations on Executive Compensation Excise Tax (Section 4960) Carries Forward Most Concepts from Proposal
On January 19, 2021 the Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) published in the Federal Register Final Regulations (the “Final Regulations”) interpreting the excise tax under Section 4960 of the Internal Revenue Code on certain executive compensation paid by…
10 Keys to Excise Tax on Executive Compensation Paid by Tax-Exempt Organizations
Proposed Regulations under Section 4960 of the Internal Revenue Code provide important guidance for tax-exempt organizations and their affiliates regarding an excise tax on certain executive compensation. The U.S. Department of the Treasury (“Treasury”) and Internal Revenue Service (the “IRS”) are accepting comments until August 10, 2020. (Throughout this post, “Sections” refer to sections of the Internal Revenue Code.)
As a refresher, Section 4960 was enacted as part of the 2017 Tax Cuts and Jobs Act (the “TCJA”). Effective for taxable years beginning after December 31, 2017, Section 4960 imposes an excise tax at the corporate tax rate (currently at 21%) on certain remuneration in excess of $1 million and on certain separation pay (“excess parachute payments”). The excise tax falls on “applicable tax-exempt entities” (“ATEOs”) and related organizations. It is intended to have the same economic effect as a for-profit corporation losing a tax deduction.
The Proposed Regulations are generally consistent with the IRS’s interim guidance under Notice 2019-09 (the “Notice”), which is discussed here and here. But the Proposed Regulations elaborate on certain points and include some helpful changes in response to comments.
If finalized, the Proposed Regulations will apply for tax years beginning on or after the final regulations are published in the Federal Register. Until then, tax-exempt organizations may apply a “reasonable, good faith” interpretation of the statute. For this purpose, tax-exempt organizations may rely on the Proposed Regulations or the Notice. Although the Proposed Regulations are not binding, they include a list of positions that the IRS considers to be an unreasonable interpretation of the statute.
IRS Provides Guidance on Unrelated Business Income Tax Refunds
On Friday, December 20, 2019, President Trump signed into law government funding legislation for the 2020 fiscal year that includes a provision repealing Section 512(a)(7), commonly referred to as the “parking tax,” with retroactive effect to the date of its enactment.[1] Section 512(a)(7) was enacted pursuant to the…
A Good 403(b) or a Bad 403(b)? A Question IRS Auditors Look to Answer
For a discussion of section 403(b) plan compliance, please see the post on Proskauer’s Employee Benefits & Executive Compensation Blog.
Parsonage Exclusion Found by Seventh Circuit to Be Constitutional
On March 15, 2019, the U.S. Court of Appeals for the Seventh Circuit held in Gaylor v. Mnuchin that the tax exemption for “ministers of the gospel” (defined below) under Section 107(2) of the Internal Revenue Code (the “Code”) does not violate the Establishment Clause[1] of the First Amendment…
Inclusion of Qualified Transportation Fringe Benefits in UBTI: Guidance, Relief, and Rumors of Possible Repeal
December 10, 2018 saw significant activity with respect to Section 512(a)(7) of the Internal Revenue Code (the “Code”), which requires tax-exempt employers to increase their unrelated business taxable income (“UBTI”) by amounts paid or incurred for qualified transportation fringe benefits provided to employees, including the provision of parking and public…
IRS Announces Relief from the “Once-In-Always-In” Requirement for Excluding Part-Time Employees Under 403(b) Plans
Last week, the IRS released Notice 2018-95 to provide transition relief to 403(b) plans that improperly excluded certain employees. Specifically, Notice 2018-95 targets employers that may have erroneously excluded part-time employees from eligibility to make elective deferral when the employees should have been eligible to participate under the “once-in-always-in” requirement…
Tax-Exempts May Limit Fund Investments Pursuant to New IRS Guidance on UBTI
On August 21, 2018, the Internal Revenue Service (“IRS”) released Notice 2018-67 (the “Notice”), addressing issues relevant to tax-exempt organizations arising under new Section 512(a)(6) of the Internal Revenue Code (the “Code”), promulgated pursuant to the 2017 U.S. tax legislation that is commonly referred to as the “Tax Cuts and…
IRS Provides Guidance on Searching for Missing 403(b) Participants
On February 23rd, the IRS issued a memorandum to its examiners instructing them not to challenge a 403(b) plan for failing to satisfy the required minimum distribution (“RMD”) rules with respect to missing participants or beneficiaries if the plan sponsor has taken certain specific steps to find them.
Generally, the RMD rules require that a 403(b) participant must begin taking minimum distributions by the April 1st following the year the participant reaches age 70 ½ or, if the plan allows, the April 1st following the year that the participant retires, if later. Questions frequently arise regarding whether the IRS may challenge a plan for failing to timely commence benefit payments to participants that the plan is unable to locate.