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Rethink Executive Comp Rule in Light of Pandemic, Foundations Say

AUG. 10, 2020

Rethink Executive Comp Rule in Light of Pandemic, Foundations Say

DATED AUG. 10, 2020
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Council on Foundations
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2020-30951
  • Tax Analysts Electronic Citation
    2020 TNTF 156-30
    2020 EOR 9-45
  • Magazine Citation
    The Exempt Organization Tax Review, Sep. 2020, p. 325
    86 Exempt Org. Tax Rev. 325 (2020)

August 10, 2020

Internal Revenue Service
CC:PA-LPD:PR (REG-122345-18)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

RE: Proposed Regulations Under Section 4960 of the Internal Revenue Code

The Council on Foundations is pleased to submit comments in response to the above referenced proposed regulations under Section 4960 of the Internal Revenue Code (the “Code”). The Council on Foundations is a nonprofit leadership association of grant making foundations and corporations, and a public charity qualified under Section 501(c)(3) of the Internal Revenue Code. Our members include over 700 philanthropic organizations and our mission is to foster an environment where philanthropy can thrive, and to cultivate a community of diverse and skilled philanthropic professionals and organizations who lead with integrity, serve as ethical stewards and advocate for progress. As always, the Council's comments are informed by our members and reflect issues that are important to our members and that impact their day-to-day work.

On behalf of our members, we appreciate that the Treasury Department and the IRS have sought to address in these proposed regulations an important issue we raised in our June 17, 2019 comments to Notice 2019-09. Specifically, we asked for clarification regarding whether a corporate employee who serves as a volunteer director or officer of a related ATEO can be considered a “covered employee” of the ATEO for purposes of Section 4960, and we are encouraged that the limited hours exception and the nonexempt funds exception included in the proposed regulations will help organizations determine with greater clarity whether an individual must be counted as one of the 5 highest compensated employees of the ATEO. We also appreciate that Treasury and the IRS noted that the ATEO is not deemed to pay remuneration for services performed for the ATEO when such remuneration is paid by a related organization that also employs the individual, so long as the ATEO does not reimburse the payor and is not treated as paying remuneration paid by a related organization for services performed for the related organization. Finally, we appreciate clarification that benefits excluded from gross income are not considered remuneration, including certain expense allowances and reimbursements under an accountable plan.

Comments with Respect to Covered Employees:

Consistent with section 4960(c)(2), the proposed regulations define “covered employee” to mean any individual who is one of the five highest-compensated employees of the ATEO for a taxable year, or was a covered employee of the ATEO (or any predecessor) for any preceding taxable year beginning after December 31, 2016. Once an employee is a covered employee of an ATEO, the employee continues to be a covered employee for all subsequent taxable years of that ATEO. As previous commenters have suggested, the requirement that an ATEO continue to count an individual as a covered employee indefinitely, even after the employment relationship has ended, creates a potentially excessive administrative burden for the ATEO. To further complicate matters, the proposed regulations allow for situations where predecessor and successor ATEO covered employees must continue to be counted and tracked. Specifically, the proposed regulations provide that “an individual who is a covered employee of an ATEO (or of an ATEO predecessor of an ATEO) for one taxable year remains a covered employee of that ATEO (and any successor ATEOs) for subsequent taxable years.”

Considering the current pandemic and its disastrous effect on the economy (including the nonprofit sector), it is reasonable to expect a greater number of mergers, restructures and consolidations among nonprofit organizations. The Council suggests that Treasury and the IRS revisit this issue and reconsider the provisions that will require ATEOs to continue to count the covered employees of predecessor organizations and successor ATEOs to count the covered employees of acquired organizations indefinitely. Particularly where a consolidation or restructure situation involves changes to employees' job responsibilities and compensation, it may no longer further the purpose of the statute to continue to include a particular individual as a covered employee, and the ATEO should be relieved of the burden of continuing to include that employee among the covered employees for purposes of the statute.

These comments were developed by the Public Policy and Legal Affairs staff at the Council on Foundations. Council staff have daily contact with our numerous members and these comments are informed by the issues and challenges our members express. We appreciate your consideration of these comments and welcome the opportunity to discuss these items with you further. If you have any questions, please feel free to contact Suzanne Friday at (202) 991-5881 or Suzanne.Friday@cof.org.

Thank you for considering these concerns submitted with the intent of supporting both fairness and tax compliance for our nonprofit charitable community.

Respectfully submitted,

Suzanne Friday
Vice President Legal Affairs
Council on Foundations

David Kass
Vice President for Government Affairs and
Strategic Communications
Council on Foundations
Washington, DC

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Council on Foundations
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2020-30951
  • Tax Analysts Electronic Citation
    2020 TNTF 156-30
    2020 EOR 9-45
  • Magazine Citation
    The Exempt Organization Tax Review, Sep. 2020, p. 325
    86 Exempt Org. Tax Rev. 325 (2020)
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