Tuesday, June 18, 2019
The Treasury Inspector General for Tax Administration (TIGTA) issued a report earlier this month detailing the steps the IRS and Chief Counsel have taken to implement new Internal Revenue Code section 4960. This section impose a 21 percent excise tax on applicable tax-exempt organizations that pay more than $1 million in compensation to any covered employee for taxable years beginning after December 31, 2017. (The excise tax also applies to any excess parachute payment paid to a covered employee.) The report is an interesting look into how much has to be done behind the scenes to implement a new Code section. For example, tax forms, instructions, and computer programming had to be updated, needed guidance had to be issued, and tax-exempt organizations, their advisors, and IRS employees had to be informed about the new provision. TIGTA estimated that a couple thousand employees of tax-exempt employees received wages over the $1 million threshold, and the IRS estimated that 2,700 organizations would be affected by the tax in tax year 2018.
TIGTA found that generally the IRS and Chief Counsel successfully completed the necessary implementation steps in a timely fashion. These steps included having available by December 31, 2018 a revised Form 4720 (including new Schedule N) and related instructions, a (slightly) revised Form 990 and Form 990-PF (and related instructions) so that each form now includes a line item identifying if the filing organization has to pay the tax, and proposed regulations and interim guidance. (Treasury and the IRS released the final regulations on April 9, 2019, which cover procedural issues relating to paying the tax; the interim guidance still applies for substantive issues.) However, the one gap that TIGTA found was the lack of a completed strategy to identify and address noncompliance after organizations file their returns, as required by the Government Accountability Office's Standards for Internal Control in the Federal Government (known as the Green Book).