Close
Close

Interim guidance issued on Section 4960 excise taxes on tax-exempts

RFP
Tax Hot Topics newsletterThe IRS has provided detailed guidance (Notice 2019-09) on identifying and calculating the new excise taxes on tax-exempt organizations under Section 4960.

Section 4960 was created by the Tax Cuts and Jobs Act (TCJA) and imposes two 21% excise taxes on tax-exempt organizations on remuneration in excess of $1 million for the highest-paid employees (covered employees) and 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.

Although Notice 2019-09 does not provide any transition relief for tax-exempt organizations to adopt the new rules under Section 4960, the Notice does emphasize that the new excise taxes generally do not apply to remuneration and parachute payments that vested before the effective date.

Grant Thornton Insight: Tax-exempt organizations should review their existing compensation arrangements in light of the new guidance to identify opportunities to mitigate the potential impact of the new excise taxes on excess remuneration and parachute payments. Employers should also consider this interim guidance when entering into new compensation arrangements with executives or redesigning existing arrangements to reduce or eliminate exposure to the new excise taxes.
Contact:
Keith Mong
Managing Director, Washington National Tax Office
T +1 202 521 1554


Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.