Tuesday, August 16, 2022

EOs Paid $210 Million in Excise Taxes on Excess Executive Compensation in 2021

Download (1)Earlier this month the IRS released a spreadsheet showing the excise taxes reported by charities, private foundations, and split-interest trusts on Form 4720 for calendar year 2021. It included two notable figures relating to new excise taxes enacted by Congress in 2017.

First, 516 tax-exempt organizations reported owing $210 million in IRC section 4960 excise taxes on excess executive compensation (over $1 million annually paid to covered employees, plus certain excess parachute payments). This compares to only 302 tax-exempt organizations reporting owing $96 million in such taxes for calendar year 2020, likely reflecting increased awareness among tax-exempt organizations and their advisors about the tax as opposed to a large jump in the amount of excess executive compensation. The IRS has also made compliance with this tax a compliance focus, stating that "[o]n-going review of filing data shows there continues to be a high volume of exempt organizations that paid compensation of over $1 million to at least one 'covered employee' but did not report IRC Section 4960 excise tax on Form 4720" (see Tax Exempt & Government Entities – Compliance Program and Priorities).

Second, 33 tax-exempt organizations reported owing $68 million in IRC section 4968 excise taxes on investment income of certain private colleges and universities. This compares to fewer than 10 organizations reporting owing less than $3.2 million in such taxes for calendar year 2020. Given the relatively high profile of this new tax, and the fact that only colleges and universities with very large endowments relatively were affected, it is unclear why there was such a large increase in both the number of organizations reporting the tax and the amounts owed.

Lloyd Mayer

https://lawprofessors.typepad.com/nonprofit/2022/08/eos-paid-210-million-in-excise-taxes-on-excess-executive-compensation-in-2021.html

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