Proposed Section 4960 regulations clarify excess compensation excise tax

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June 2020

Overview

The IRS on June 5 released proposed regulations providing guidance on the Section 4960 excise tax on excess compensation and excess parachute payments by applicable tax-exempt organizations (ATEOs). The lengthy proposed regulations seek to clarify definitions on how to calculate the excise tax, largely building on previously published IRS Notice 2019-09.

The takeaway

While the proposed regulations largely follow initial guidance in Notice 2019-09, they introduce several definitional changes. One of the most impactful changes from the Notice is the provision of various exceptions to inclusion of volunteer officers in the determination of an ATEO’s covered employees. The definition of ‘control’ for purposes of identifying a related ATEO was confirmed. The proposed regulations provide further detail regarding ‘predecessor’ ATEOs. Lastly, how to apply the statute’s ‘taxable year’ language for calculating remuneration was clarified in the definition of ‘applicable year’ as the calendar year ending with or within the tax year.

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Rob Friz

Health Services Tax Leader, PwC US

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