The IRS this week posted to its website a version of the final regulations (T.D. 9938) concerning the excise tax imposed regarding excess tax-exempt organization executive compensation.
The final regulations [PDF 656 KB] (176 pages) implement section 4960 as added to the Code by the 2017 tax law (Pub. L. No. 115-97)—the law that is often referred to as the “Tax Cuts and Jobs Act” (TJCA).
Section 4960 provides that an “applicable tax-exempt organization” (ATEO) that pays a “covered employee” remuneration in excess of $1 million or any excess parachute payment in an applicable year is subject to an excise tax. Section 4960 is applicable for tax years beginning after December 31, 2017.
These regulations finalize regulations that were proposed in June 2020. Once published in the Federal Register, these final regulations are set to apply to tax years beginning after December 31, 2021.
This report focuses on the modifications made in the final regulations.
Notably, this version of the final regulations has not yet been published in the Federal Register, and the regulations will not be effective unless and until they are published. According to a legend on the document, the published regulations “may vary slightly” from the version released if “editorial changes are made during the OFR [Office of the Federal Register] review process.” In such case, the document that is published in the Federal Register will be the official document. It is expected that the final regulations will be published before the new administration takes office on January 20, 2021, but if they are not published by then, there could be a more significant delay in publication while the incoming administration reviews the regulations.
The final regulations modified this exception in two respects:
For more information, contact a tax professional with KPMG’s Washington National Tax practice:
Compensation and benefits
Robert Delgado | +1 (858) 750-7133 | firstname.lastname@example.org
Erinn Madden | +1 (202) 533-3757 | email@example.com
Terri Stecher | +1 (202) 533-4830 | firstname.lastname@example.org
Ruth Madrigal | +1 202 533 8817 | email@example.com
Preston Quesenberry | +1 202 533 3985 | firstname.lastname@example.org
 See Section III.F of the Explanation of Provisions of the proposed regulations, titled “Remuneration Paid to a Covered Employee for Which a Deduction Is Disallowed Under Section 162(m).”
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