May 21, 2019

May 21, 2019

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May 20, 2019

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Interim Guidance Released on Excise Tax on Executive Compensation Paid by Tax-Exempt Organizations

The Department of the Treasury and the Internal Revenue Service recently released Notice 2019-09 (the “Notice”), which provides interim guidance under Section 4960 of the Internal Revenue Code.

Section 4960 was added to the Internal Revenue Code as part of the tax reform legislation that was enacted on December 22, 2017. Very generally, Section 4960 imposes a 21% excise tax (based upon the current corporate tax rate) on certain tax-exempt entities (and related organizations) that pay remuneration in excess of $1 million to certain highly-paid individuals or that make “excess parachute payments” to this class of highly-paid individuals.

The Notice provides interim guidance on how to interpret and apply Section 4960, including answering questions concerning:

  • Which tax-exempt organizations does the excise tax apply to?
  • How does the excise tax apply to related organizations and entities, including for-profit and governmental entities?
  • How should an organization determine which employees are covered?
  • How to determine if an employee receives remuneration in excess of $1 million?
  • What are excess parachute payments that could subject an organization to the excise tax?
  • How should the excise tax be reported and paid?
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About this Author

Steven Einhorn, Proskauer Law Firm, Tax Lawyer
Associate

Steven D. Einhorn is an associate in the Tax Department and a member of the Employee Benefits & Executive Compensation Group. Steven regularly advises public and private companies with respect to employee benefits and executive compensation matters, including compliance with ERISA, tax, corporate and securities laws and regulations affecting employee benefit plans, programs and arrangements. In addition, Steven advises clients with respect to the employee benefits and executive compensation issues related to corporate mergers & acquisitions and other forms of...

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