IRS Issues Guidance on Excess Pay by Tax-Exempt Organizations (Journal Article)

Internal Revenue Code Section 4960 is effective for a tax-exempt organization’s (ATEO’s) taxable year beginning in 2018. This section imposes a 21 percent excise tax on ATEOs that pay excess annual compensation or an excess parachute payment to a covered employee. Proposed Regulations were recently issued to provide much needed guidance for ATEOs. However, the particulars are quite detailed and highly technical in nature. As a result, if ATEOs have not already done so, they should begin now to evaluate whether and how the new excise tax may have applied or will apply in tax years beginning after 2017.

Author: Paul J. Schneider, JD, LLM, is senior counsel to Paisner~Litvin, LLP, Bala Cynwyd, Pennsylvania, where he has advised clients on taxation and employee benefit matters for more than 30 years. He is a charter fellow of the American College of Employee Benefits Counsel and has served as chairman of the Important Developments Subcommittee of the American Bar Association Tax Section’s Employee Benefits Committee. Mr. Schneider is also a member of the board of editors of the Journal of Taxation. Mr. Schneider is a graduate of Lehigh University, Columbia University School of Law (JD), New York University (LLM in Taxation), and LaSalle University (MBA). Mr. Schneider frequently writes articles and lectures on tax and employee benefits-related topics, and is the former coeditor of ERISA: A Comprehensive Guide, 4th Edition (Aspen, 2011).

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