New Excess Compensation Tax Guidance for Tax Exempt & Governmental Organizations

Recently, the IRS has issued Notice 2019-9 which provides interim guidance clarifying the implementation of §4960 for tax exempt and governmental organizations that compensate employees in excess of $1 million. This tax is designed as an excise tax with the intent of leveling the playing field for tax exempt and governmental organizations with private sector corporations.

The most notable piece of new information in this Notice is that the “taxable year” to determine the tax will be the calendar year ending with or within the employer’s tax year. Consequently, the remuneration to be taxed will not always mirror an organization’s fiscal year expenditures. However, this treatment is consistent with the compensation reporting methodology on Form 990 whereby tax filing deadlines are based on the organization’s fiscal year but the compensation reporting is the calendar year.

As with most of the interim guidance associated with the Tax Cuts and Jobs Act of 2017, the IRS is permitting the use of any reasonable good-faith interpretation in areas of uncertainty for these developing regulations. If you have questions about this issue or any other exempt organization tax needs, please contact us.