2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

EXCISE TAXES FOR HIGHLY COMPENSATED NONPROFIT EMPLOYEES Pre-Act Law

DONOR DISCLOSURE: DO WE OR DON’T WE? The IRS recently announced proposed regulations to end the requirement for non-charitable nonprofits to disclose the names of donors and amounts given. More specifically, tax-exempt organizations described by section 501(c), other than section 501(c)(3) organizations, are no longer required to report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ. The donor disclosure requirements for 501(c)(3) and 527 organizations are not affected by the change. One of the concerns with the elimination of the disclosure requirement is that organizations will no longer have to identify sources of funding for 501(c)(4) social welfare organizations, 501(c)(5) labor organizations, and 501(c)(6) business leagues, whereby funders for political campaigning will no longer be known. The elimination of the disclosure requirement on Schedule B of Form 990 or 990-EZ takes place immediately as it applies to information returns for taxable years ending on or after December 31, 2018. Public comments will be due on or about December 9, 2019. CONCLUSION Since the passage of TCJA, individual lawmakers, supported and lobbied by nonprofit sector advocates and practitioners, have introduced legislation to try to repeal some of the more burdensome elements to the law, as well as to bring reform and even introduce additional nonprofit policy. While the effort to”fix” the law does have momentum, action on this legislation now turns to the Senate. We remain hopeful that acknowledgement of the negative impact of the TCJA within the nonprofit sector will enable unfavorable tax policies to be amended. However, with an election year upon us and bipartisan bickering front and center, we aren’t holding our breath that Congress will pass meaningful tax fixers or repeal in the coming tax year. Therefore, it is prudent for tax-exempt organizations to prepare, comply with and stay abreast of changes as they happen. For questions on how these or other new tax provisions apply to your tax-exempt organization, please contact your Marcum tax-exempt professional.

The fair value of compensation to executives at tax-exempt organizations is required to be reasonable, which is typically the value that would be paid for like services by a similar nonprofit under comparable circumstances. Any compensation determined to be in excess of these reasonable rules results in excise taxes under intermediate sanctions and possibly loss of exemption under the Private Inurement rules. New Law In addition to prior law, under §4960 of the TCJA, tax-exempt organizations are subject to a 21% excise tax on the total of (1) the remuneration (other than an excess parachute payment) greater than $1 million paid to a covered employee, and (2) any excess parachute payment (as defined) paid to a covered employee. A covered employee is any applicable tax-exempt organization employee (or former employee) if the employee is one of the organization’s five highest-compensated employees for the tax year or any preceding tax year after December 31, 2016. Remuneration under the law is defined as all wages subject to income tax withholding, including amounts that must be included in gross income, but excludes designated Roth IRA or 401(k) contributions. Compensation does not include wages paid to licensed medical professionals (including veterinarians) for performance of medical and veterinary services. Updated Law In Notice 2019-09, the IRS provided interim guidance on a number of definitions and concepts that needed explanation in this complex code section. The notice clarifies that the period for measuring remuneration and parachute payments is the calendar year that ends with or within the taxable year of the employer, which is generally the same method used for reporting compensation on the Form 990. The Notice also expands on remuneration from retirement plans such as 457(f) plans. Such compensation is treated as paid when it is no longer subject to a risk of forfeiture (i.e., when it vests).

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