Structuring Compensation Arrangements for Nonprofit Executives: New Tax Bill Provisions, Section 4960, Excise Tax

BARBRI

This CLE/CPE course will provide employee benefits counsel with an overview of structuring equity compensation arrangements for executives of nonprofit organizations. The panel will discuss the potential impact of the new tax bill, tax consequences, advantages and disadvantages, design and structuring options, and implementation considerations.

Description

Deferred compensation and other executive compensation plans and arrangements for tax-exempt organizations differ from those of for-profit entities. Section 4960 imposes an excise tax on tax-exempt organizations that pay excessive compensation to certain employees. ERISA counsel must understand complex tax rules, reporting requirements, and available planning techniques when structuring executive compensation for tax-exempt organizations.

Under Section 4960, a tax-exempt organization may be subject to a 21 percent excise tax on excessive compensation paid to employees if such compensation exceeds $1 million during the tax year or the aggregate present values of an individual's separation payments and benefits equals or exceeds three times their five-year average pay. Applying Section 4960 involves identifying entities and employees subject to these rules and how parachute payments and aggregation rules can determine if any compensation exceeds the threshold. Furthermore, the proposed tax bill appears to expand the definition of "covered employees" for purposes of Section 4960.

Listen as our panel discusses the application of Section 4960, IRS guidance, and practical methods to avoid the 21 percent excise tax.

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