Pension & Benefits News IRS issues interim guidance on excise tax owed on excess remuneration and parachute payments
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Wednesday, February 6, 2019

IRS issues interim guidance on excise tax owed on excess remuneration and parachute payments

By Pension and Benefits Editorial Staff

The IRS has issued interim guidance on the excise tax payable by exempt organizations under Code Sec. 4960 on remuneration in excess of $1 million and any excess parachute payments made to certain highly compensated current and former employees in the tax year. The excise tax imposed by Code Sec. 4960 is equal to the maximum corporate tax rate on income (currently 21 percent).

Questions and answers on Code Sec. 4960. The IRS guidance is contained in a question-and-answer format. In the guidance, the IRS addresses the definition of several terms including: “applicable tax-exempt organization;” “excess remuneration;” “covered employee;” and “excess parachute payment.” In addition, the IRS instructs taxpayers on how to report and pay the excise tax.

Reliance on guidance. The IRS intends to issue proposed regulations under Code Sec. 4960, which will incorporate the interim guidance. Until future guidance is issued, taxpayers may rely on the rules in the interim guidance for purposes of Code Sec. 4960 starting December 22, 2017 (the enactment date of the Tax Cuts and Jobs Act (P.L. 115-97)). Any future guidance will be prospective and will not apply to tax years beginning before the guidance is issued. Until additional guidance is issued, taxpayers may base their positions upon a good faith, reasonable interpretation of the statute and legislative history, where appropriate. The IRS states that the positions reflected in the interim guidance constitute a good faith and reasonable interpretation.

If a taxpayer follows a position that is inconsistent with the Notice, the determination of whether that position is a good faith, reasonable interpretation will be based upon the relevant facts and circumstances. However, the IRS notes that certain positions described in the guidance have been determined to be inconsistent with a good faith, reasonable interpretation of the statute and these inconsistent positions will be incorporated into the future proposed regulations.

Comments requested. The IRS and Treasury Department request comments on the topics addressed in the interim guidance and any other issues arising under Code Sec. 4960. Comments should be submitted no later than April 2, 2019. Submissions may be sent to: CC:PA:LPD:PR (Notice 2019-09), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (Notice 2019-09), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC, 20224 or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (indicate Notice 2019-09).

SOURCE:  IRS Notice 2019-09.

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