The 2017 tax reform legislation included new Section 4960, which imposes a 21% excise tax on remuneration in excess of $1 million and on any excess parachute payments paid by an ‘applicable tax-exempt organization’ and any related organizations to a ‘covered employee.’ The IRS recently issued Notice 2019-09, providing interim guidance to assist taxpayers in applying Section 4960 and to address issues on which stakeholders indicated that they would benefit from IRS guidance.
Until further guidance is issued in the form of proposed regulations, Notice 2019-09 indicates that a taxpayer may base its reporting position on a ‘good faith, reasonable interpretation of the statute,’ including consideration of the legislative history, where appropriate. The positions reflected in the 92-page Notice are deemed to constitute good faith, reasonable interpretations of the statute; the Notice also sets forth positions that would not meet this standard and, thus, may not be taken by taxpayers. The Notice requests comments by April 2, 2019, on issues under Section 4960, including six specific topics.
This Tax Insights discusses the interim guidance relating to the application and calculation of the excise tax.
The interim guidance in Notice 2019-09 is intended to assist taxpayers in applying Section 4960 while Treasury and the IRS develop further guidance. Exempt organizations are encouraged to consider the implications of the new excise tax as clarified by the Notice. Specific highlights include:
Exempt organizations now will be challenged to understand and implement this interim guidance quickly in the new tax year so they can determine the tax impact and consider any operational changes going forward that might mitigate their excise tax exposure. In addition, organizations should determine whether there still are unanswered questions or comments that warrant submission to Treasury and the IRS by April 2, 2019. The Notice specifically requests comments on the following six topics:
Health Services Tax Leader, PwC US