IRS Form 4720 addresses excess exec comp excise tax

Tax Hot Topics newsletterThe IRS released a draft Form 4720 for taxable year 2018, reflecting the newly enacted Section 4960 excise tax on excess executive compensation for tax-exempt organizations. The Tax Cuts and Jobs Act (TCJA) imposed a 21% excise tax on tax-exempt entities paying compensation in excess of $1 million to any of their five highest-paid employees (covered employees) for taxable years after Dec. 31, 2017. The Section 4960 provisions are similar to the Section 162(m) $1 million deduction limit for executive compensation imposed on for-profit entities, also modified by the TCJA. In addition, a 21% excise tax is imposed on excess parachute payments made to covered employees of tax-exempt entities, with provisions similar to those under the Section 280G rules for golden parachute payments.

The 2018 draft Form 4720 adds Schedule N, “Tax on Excess Executive Compensation,” for reporting excess executive remuneration and excess parachute payments that would be subject to the 21% excise tax. The excise tax is also added to the tax-exempt organization’s list of taxes on page 1 of the 2018 draft Form 4720.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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