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Abstract: 

The Tax Cuts and Jobs Act, passed in late December 2017, added IRC §4960 to the Internal Revenue Code. The new provision imposes an excise tax on “excess” compensation paid by an IRC §501(c)(3) organization (as well as other “applicable tax-exempt organizations” defined in the statute) to a “covered employee.” The tax is imposed at a rate equal to the tax imposed on corporations under IRC §11 (20% for 2020). The employer (not the employee) is liable for the tax. In December 2018, the IRS issued interim guidance to assist taxpayers in complying with IRC §4960. On June 11, 2020, the IRS issued proposed regulations under IRC §4960. This article gives an overview of key provisions of IRC §4960 and the proposed regulations likely applicable to family foundations. Practice Point: The regulations are proposed to apply to taxable years beginning on or after the date the final regulations are published in the Federal Register. Until the applicability date of the final regulations, taxpayers may rely on the guidance provided in Notice 2019-09 or, alternatively, on the proposed regulations, including for periods prior to June 11, 2020.

Keywords: IRC §4960; “Covered Employee”; Officers vs. Directors or Trustees; Aggregation of Related Organizations

Affiliations:  1: Clark Hill PLC.