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Interim Guidance for Exempt Organizations - Compensation Excise Tax

The Internal Revenue Service recently released Notice 2019-09 (the Notice), which provides interim guidance relating to Section 4960 of the Internal Revenue Code. Included within the Tax Cuts and Jobs Act of 2017, Section 4960 imposes an excise tax (21% based upon the current corporate tax rate) on the amount of compensation in excess of $1 million and any excess parachute payment paid by an applicable tax-exempt organization to a covered employee. 

The Notice is designed to assist employers implementing the new provision, and includes definitions of key terms and examples in a Question and Answer format. Furthermore, the Notice discusses how to compute, report, and pay the excise tax.

Specifically, the Notice addresses such matters as follows:

  • Compensation paid to a licensed medical professional for the direct performance of medical services (including nursing services), or veterinary services,by the professional is not compensation for purposes of calculating any excess compensation subject to the excise tax. However, compensation paid to the professional for any other services, including administrative and management services associated with the performance of medical or veterinary services, is compensation for purposes of calculating any excess compensation subject to the excise tax.
  • Taxes imposed under Section 4960 are reported and paid annually on Form 4720. There is no requirement for tax-exempt organizations to make estimated tax payments on the excise taxes imposed under Section 4960.
  • Compensation is reported based on the calendar year ending with or within the organizations taxable year. This is also how tax-exempt organizations report compensation on Form 990.

The Notice provides interim guidance and states that organizations may use a good faith, reasonable interpretation of the statute, until proposed regulations are available. The Notice also requests that any additional comments related to the Notice be submitted for consideration by April 2019.

Citrin Cooperman’s Not-for-Profit professionals are committed to keeping you informed and will provide updated information as the IRS publishes additional guidance on this topic. If you have any questions regarding Notice 2019-09, or how it may affect your organization, please contact Joseph Barreca or John Eusanio.

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