June 18, 2019

June 18, 2019

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June 17, 2019

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New Excise Tax For Tax-Exempts Can Ensnare For-Profit Employers: Comment Deadline Fast Approaching

As discussed here, the IRS’s initial interpretation of a new excise tax under Section 4960 of the Internal Revenue Code could catch for-profit employers who set up foundations, trusts, PACs, and other tax-exempt entities off guard.  The tax is 21% of certain compensation paid to the top five highest paid employees of the tax-exempt entity.  Although the tax was designed to apply for compensation to high-paid executives of tax-exempt entities, an aggregation rule in the IRS’s initial guidance (Notice 2019-9) picks up compensation paid by related employers, even if they are for-profit companies.

For example, suppose a for-profit company controls more than 50% of the board of a tax-exempt foundation, and the company’s treasurer also serves as an officer of the foundation.  If the foundation is treated as a common law employer of the treasurer (even if the for-profit company is also a common law employer), the CIO could be a covered employee of the foundation.  If the treasurer makes more than $1 million—whether in the current year or in the future—the excise tax can be triggered, even if all of the treasurer’s compensation is paid by the for-profit company.  A similar issue could arise if the treasurer receives significant separation pay, even if it does not reach the $1 million threshold.  The tax would be owed by the for-profit employer and any others who pay the treasurer’s compensation.

The deadline for submitting comments to the IRS is April 2nd.  Employers who are affected by the rule’s broad net should consider submitting comments (and we can help).

© 2019 Proskauer Rose LLP.

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About this Author

Seth Safra, Proskauer Law Firm, Employee Benefits, Executive Compensation and ERISA Litigation Attorney
Partner

Seth Safra is a partner in the Employee Benefits & Executive Compensation Group, where he counsels clients on all aspects of employee benefits and executive compensation.

Seth advises clients on ERISA and other related laws with respect to the design and administration of qualified and non-qualitied retirement plans, including defined contribution (including 401(k) and ESOPs) and cash balance plans. In addition, Seth counsels clients on their health & welfare plans, including advising on issues related to health care reform.

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202-416-5840
Steven Weinstein, Employee Benefits Attorney, Proskauer Rose Law Firm
Partner

Steven Weinstein is a partner in the Employee Benefits & Executive Compensation Group and co-head of the Strategic Corporate Planning Group. He has been practicing in the employee benefits field since 1984, representing clients sponsoring single employer and Taft-Hartley pension and welfare plans.

Steven advises clients in all aspects of pension plan tax qualification and plan administration, including drafting of plan documents and employee communications; providing advice relating to corporate acquisitions and mergers; and negotiating investment management agreements, trust agreements, recordkeeping and custodial contracts, and other plan-related contracts.

212-969-3362
Damian A Myers Labor and employment law attorney proskauer rose
Senior Counsel

Damian Myers is an Associate in the Employee Benefits, Executive Compensation and ERISA Litigation Practice Center, resident in the Washington, DC office.

Damian represents public and private companies on matters related to employee benefits and executive compensation including compliance with ERISA, tax, corporate and securities laws and regulations affecting employee benefit plans, programs and arrangements. He concentrates on all aspects of compensation and employee benefit programs, including the design, implementation, administration and funding of non-qualified retirement...

202-416-6877