Executive Compensation for Tax Exempt Organizations: New 4960 Regs, Covered Employees, Donated Services, Aggregation

Section 4960 imposes an excise tax on certain excess executive compensation paid by a tax exempt organization to certain covered employees. The IRS issued regulations under Section 4960 providing clarity to "covered employees" with some exceptions. ERISA counsel and advisers must recognize key provisions of the recent regulations, along with other considerations under Section 83, Section 162, and golden parachute rules.

Section 4960 imposes an excise tax equal to the corporate tax rate, which is currently 21 percent, on covered employee's pay that exceeds $1 million or is treated as an excess parachute payment. Recent IRS regulations provide exceptions to the application of Section 4960, such as the (1) limited hours exception, (2) nonexempt funds exception, and (3) limited services exceptions. All of which have strict requirements in order to avoid being subject to an excise tax.

Section 83 of the IRC and Treasury regulations govern the tax consequences of restricted property, including restricted stock awards. Under the recent regulations, the transfer of Section 83 property is considered a payment made in the taxable year in which it is transferred or would be includible in the gross income of the covered employee under Section 83, regardless of any election made by the employee under Section 83(b) or (i).

Counsel must understand the Treasury regulations to structure, draft, and implement restricted stock awards or other compensation arrangements.

Listen as our authoritative panel discusses important topics such as the impact of recent IRS regulations for Section 4960, substantial risk of forfeiture, income recognition, IRC Section 83(b) elections, withholding requirements, Section 162, and golden parachute rules.