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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…

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.

As we have previously discussed, the 2017 tax reform act created a new excise tax under section 4960 of the Internal Revenue Code that will affect many tax-exempt employers.  The tax is 21% of certain compensation and can be triggered if an employee receives more than $1 million of…

On December 31, 2018, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) released Notice 2019-09 (the “Notice”), which provides interim guidance under Section 4960 of the Internal Revenue Code.

Very generally, Section 4960 imposes a 21% excise tax on certain tax-exempt entities (and certain related…

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

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Early on December 2, 2017, the Senate passed the Tax Cuts and Jobs Act (the “Senate Bill”).  This blog entry describes certain provisions of the Senate Bill that would have the most significant impact on the nonprofit community, including important differences between the Senate Bill and the prior version of the Senate bill and the bill passed by the House of Representatives (the “House Bill”) (both of which we described several weeks ago in “Updates for Tax-Exempt Organizations from the Senate Markup to the Tax Cuts and Jobs Act”).

Posted in IRS

House Republican Tax Bill Imposes Excise Tax on Wealthy Private Universities and Excess Compensation of Highly Paid Employees; Subjects State Pension Plans to UBTI Rules

On Thursday, November 2, House Republicans led by Speaker Paul Brady (R-WI) and Chairman of the House Ways & Means Committee Kevin Brady (R-TX), released the first public draft of the much-anticipated Tax Cuts and Jobs Act (the “bill”). (Our full coverage of the bill can be found here.)

In addition to providing substantial rate cuts for corporations and many pass-through businesses and repealing the estate tax, the 429-page document contains several provisions of interest to public charities and private foundations (as well as their advisors).

As part of a series of papers outlining tax reform options for the Senate Finance Committee (SFC), the SFC staff recently published a paper on tax reform options for tax-exempt organizations and charitable giving.  Like the other staff papers on tax reform options, the exempt organizations paper compiles suggestions that have been made by witnesses at SFC hearings, by policy experts, by bipartisan commissions, and elsewhere.  Thus, the paper does not set forth new proposals, but gathers in one place numerous proposals that have been made, with links to sources of those proposals where available.  For exempt organizations, the proposals range from taxing all commercial activities of tax-exempt organizations, to revising the unrelated business income tax rules for organizations conducting commercial activities, to requiring specified payout levels from endowments, to limiting executive compensation that tax-exempt organizations may pay.  With respect to the tax deduction for charitable contributions, the proposals range from repealing the deduction, to fundamentally changing the deduction, to incrementally reforming the deduction in a variety of ways.