IRS Issues Interim Guidance on Nonprofit Excise Tax
Directives related to deferred compensation plans have ASAE concerned
On Dec. 31, 2018, despite the partial government shutdown, the Internal Revenue Service (IRS) issued interim guidance on the 21 percent excise tax on tax-exempt executive compensation exceeding $1 million in any taxable year, enacted as part of the 2017 tax law.
The American Society of Association Executives (ASAE) has flagged the tax as concerning to the tax-exempt community, particularly because compensation subject to the new tax includes more than just base salary. It also includes the cash value of most benefits, including those that have vested but haven’t been received, retirement benefits, and certain retention payments contingent upon service. This means that many nonprofits could be affected, not just those with highly compensated CEOs.
ASAE is particularly concerned about the treatment of amounts payable under Section 457(f) deferred compensation plans in which benefits vest all at once after a period of years (i.e., a “cliff-vesting” provision).
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