Exempt Org. Resource Blog

IRS Issues Interim Guidance Regarding Compensation Tax

As we previously reported, the Tax Cuts and Jobs Act, which was signed into law at the end of 2017, imposes an excise tax on certain tax-exempt organizations equivalent to 21% of “excess compensation” (including certain severance payments) paid to certain current and former employees.  Under the new Section 4960 of the Internal Revenue Code, the tax is payable by the tax-exempt organization and, if applicable, a “related organization” (on a proportional basis).  Section 4960 defines excess compensation for such employees as (i) the amount of remuneration, other than “excess parachute payments,” in excess of $1 million and (b) any “excess parachute payment” (including severance or other payments made upon separation).

The Internal Revenue Service has issued Notice 2019-9, which provides interim guidance regarding the application and calculation of this new excise tax.  The IRS intends to issue proposed regulations regarding Section 4960 and has requested comments on the interim guidance, which should be submitted no later than April 2, 2019.

We are preparing an alert which describes the guidance in more detail.