ASAE Sends Excise Tax Comments to Treasury

A provision in the tax law passed last year made associations subject to a 21 percent excise tax on executive compensation over $1 million paid to the five top-earning executives. In a letter delivered to Treasury, ASAE asked the agency to reduce the impact of the excise tax.

ASAE sent a letter to the Treasury Department on December 3 asking the department to mitigate the impact of a 21 percent excise tax on certain tax-exempt executive compensation, enacted as part of last year’s Tax Cuts and Jobs Act.

As ASAE explained in a December 4 letter to members, the tax might appear to affect only a select number of tax-exempt entities with highly compensated employees, but it actually threatens to affect a much broader segment of the tax-exempt sector. This is because compensation subject to the new tax includes not only base salary, but also 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.

“Unless Treasury acts to limit the exposure of tax-exempt organizations subject to this excise tax, many organizations currently unaware of their potential liability could find their reserves and overall fiscal health greatly compromised,” said ASAE President and CEO John Graham, FASAE, CAE, in the member letter.

In the letter to the Treasury, ASAE urged the department to establish a grandfather rule for tax-exempt entities that mirrors a grandfather clause included in last year’s tax law for executive compensation contracts of publicly held corporations. The grandfather rule would apply to contracts in effect prior to Nov. 3, 2017.

Absent Treasury exercising its regulatory authority to establish a grandfather rule, ASAE suggests Treasury issue guidance permitting an allocation of benefit amounts over the life of a 457(f) deferred compensation plan. ASAE is concerned about the tax treatment of amounts payable under Section 457(f) plans in which benefits vest all at once after a period of years.

ASAE is also asking Treasury to issue guidance confirming that Section 457(f) plan benefits that vested before January 1, 2018—when the tax law took effect—are exempt from the excise tax, even if the benefits are paid on or after that effective date.

(malerapaso/iStock/Getty Images Plus)

Chris Vest, CAE

By Chris Vest, CAE


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