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 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.