Excise Taxes and the Boogeyman
By David Park, Regulatory Compliance Counsel, NAFCU
There are few things that are more certain than death and taxes. And at some point taxes catch up with us all even if you are just playing the boardgame Monopoly. Only this guy is more certain:
You probably thought I was going to refer to the Grim Reaper. You can cheat death, but you cannot cheat John Wick. And please do not mess with his dog.
In the original John Wick, Theon Greyjoy - or to be more accurate the actor who plays him in Game of Thrones - ignites John's quest for justice by stealing his vintage Ford Mustang and harming John's puppy. Bad idea. Very bad idea.
But back to taxes. Section 13602 of the Tax Cuts and Jobs Act added section 4960 to the Internal Revenue Code in 2017. Section 4960 requires applicable tax-exempt organizations (ATEO) and related organizations to pay excise taxes on excess remuneration over $1 million and excess parachute payments made to covered employees. The excise tax is important to credit unions - as ATEOs - and their related CUSOs because they may be subject to the excise tax. Both the NAFCU Compliance team and NAFCU Services blogged about the excise tax last year.
At the end of 2018, the Treasury Department and the IRS issued Interim Guidance Under Section 4960. As with all tax issues, the terms used in section 4960 are specifically defined and have particular meanings. The interim guidance, in the absence of implementing regulations, flushes out what these defined terms mean. There is a lot of valuable information about what excess remuneration and excess parachute payments mean, how to calculate both amounts, and who is responsible for paying the excise tax. The interim guidance explains how to calculate remuneration, excess parachute payments, and the excise tax liability when you have a credit union and related CUSO that pay excess remuneration or excess parachute payments to the same covered employee.
One question that the NAFCU Compliance team has received over the past few months is how credit unions should go about reporting the excise tax liability to the IRS. Well, we now have an answer to that question. In the interim guidance, the Treasury Department and the IRS note that the excise tax should be reported and paid on Form 4720, Return of Certain Excise Taxes Under Chapter 41 and 42 of the Internal Revenue Code. The instructions for Form 4720 can be found here. The tax must be paid and the form filed by the 15th day of the 5th month after the end of the credit union's taxable year. So if your credit union has a taxable year that ends December 31st, the deadline to pay the tax and file the Form 4720 is May 15th.
Section 4960 brings together the complex worlds of benefits law and tax law. Both areas are highly specialized, and credit unions and CUSOs may wish to consult with counsel about specific areas of the excise tax that may pertain to them.
P.S. John Wick: Chapter 3 is due in theaters May 17, 2019.