Speakers: TCJA Means Treating Nonprofits More Like For-Profits

January 18, 2019

The Tax Cuts and Jobs Act has a number of provisions that both directly and indirectly affect not-for-profit organizations, but tax attorneys Bernadette Kasnicki and Louis Vlahos—speaking at the Foundation for Accounting Education’s 41st Annual Nonprofit Conference today—said that the targeted provisions seem to focus on narrowing the gap between rules that govern non-profit and for-profit organizations.

For example, Kasnicki, an associate with the firm Farrell Fritz P.C., said that the TCJA imposes a 21 percent excise tax on nonprofits that pay compensation of $1 million or more to any of their five highest-paid employees, which applies to all forms of remuneration of a covered employee. She noted that, in the for-profit world, compensation of top executives cannot be deducted beyond the point of $1 million. She said that, by subjecting nonprofits to a similar rule, the TCJA is attempting to bring exempt organizations into parity with taxable ones.

Vlahos, a partner at the same firm, said that it’s actually a little worse for nonprofits under the new rules. For-profit organizations have two carveouts for the deduction limit: one is if the pay is reasonable for services rendered previously, and the other is for parachute payments that represent payment for services going forward “because we’re not firing you but keeping you.” Not-for-profits, on the other hand, have no such carveouts.

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  • Related Practice Areas: Tax
  • Featured Attorneys: Bernadette Kasnicki, Louis Vlahos
  • Publications: The Trusted Professional