In this LawFlash, our Tax and Employee Benefits and Executive Compensation teams describe proposed regulations recently released by the Internal Revenue Service implementing Internal Revenue Code Section 4960. Section 4960 imposes a 21% excise tax on certain executive compensation paid to employees of tax-exempt organizations, including nonprofit hospital systems. The proposed regulations address important questions concerning the applicability of Section 4960. Those interested in submitting comments on the proposed regulations have until August 10, 2020 to do so.
The 2017 Tax Cuts and Jobs Act, Section 4960 imposes a 21% excise tax on certain executive compensation in excess of $1 million as well as certain excess parachute payments paid to a “covered employee” by tax-exempt entities, including tax-exempt hospitals and health systems. Recently, the Internal Revenue Service issued Notice 2019-09, which provides interim guidance on such topics as identifying covered employees, calculating remuneration under Section 4960, and allocating excess parachute payments. In a recent LawFlash, partner Mims Maynard Zabriskie and associate Anna M. Pomykala offer a timely analysis of Notice 2019-09 and identify some of the compliance challenges.