In IRS Notice 2019-09 (the “Notice”), the Internal Revenue Service (“IRS”) has provided guidance on the excise tax imposed on a tax-exempt entity under Code section 4960 that pays excess remuneration (or an excess parachute payment) to an employee. Here are the highlights of the Notice.
The General Rule of Code Section 4960. Under Code section 4960, an applicable tax-exempt organization (an “ATEO”) that pays excess remuneration or makes an excess parachute payment to a covered employee during a taxable year is subject to an excise tax on this excess. The rate of this excise tax is equal to the rate of tax under Code section 11. For taxable years beginning after December 31, 2017, this rate of tax is 21 percent.
What is An ATEO? As provided in Code section 4960(c)(1), an ATEO is any organization which, for its taxable year: