The IRS issued final regulations (T.D. 9855
) regarding excise tax reporting requirements for non-profit entities, including reporting requirements for Section 4960 excise taxes on excess executive remuneration.
Section 4960, which was newly enacted as part of the Tax Cuts and Jobs Act (TCJA), imposes a 21% excise tax on tax-exempt organizations that pay their highest-paid employees (covered employees) remuneration in excess of $1 million or parachute payments (compensation contingent on separation from employment) equal to at least three times a covered employee’s average pay. The new taxes are effective for taxable years of tax-exempt organizations beginning after Dec. 31, 2017.
The final regulations, which are effective as of April 9, adopt the proposed regulations issued in November without change. The rules provide that taxpayers (including governmental entities) liable for excise taxes under Sections 4960, 4966 (taxes on taxable distributions under donor advised funds), 4967 (taxes on prohibited benefits under donor advised funds) and 4968 (taxes on investment income of private colleges and universities) must file an annual return on Form 4720 to accompany payment of the excise taxes. Form 4720 must be filed on or before the 15th day of the fifth month following the end of the taxpayer’s taxable year during which the excise tax liability was incurred. Thus, the 2018 Form 4720 for an organization with a calendar taxable year is due no later than May 15, 2019.
The final regulations also clarify that the excise taxes under Sections 4966 and 4967 are qualified first-tier taxes subject to abatement under Section 4962.
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