The NAFCU Journal September-October 2019 - 34

COMPLIANCE CENTRAL

IRS Clarifies Excise Tax
Reporting Rules for
Federal Credit Unions
By Brandy Bruyere

O

n Dec. 15, 2017, Congress
passed the Tax Cuts and Jobs
Act (TCJA), which changed
the tax treatment for certain
compensation that a credit union pays its
top five highest-paid employees. Specifically, credit unions are now subject
to a 21 percent excise tax on what is
termed excess remuneration - certain
compensation that when totaled exceeds
$1 million - and excess parachute
payments. The IRS has a very specific
definition for remuneration, but generally it is pay that is reportable in box 1
of an employee's W-2 for which there is
not a "substantial risk of forfeiture." This
includes deferred compensation such
as that from 457(f) plans, depending on
how those funds vest. More background
can be found in past NAFCU Compliance blog posts from 2018 (www.nafcu.
org/compliance-blog/tax-reform-questionsprogramming-note) and 2019 (www.
nafcu.org/compliance-blog/excise-taxesand-boogeyman), as well as this blog post
from NAFCU Services: www.nafcu.org/
nafcuservices/nafcu-services-blog/tax-lawchanges-bring-new-excise-tax.

Credit unions that may be subject to
the excise tax are "applicable tax-exempt organizations" (ATEOs), although
keep in mind this tax could also apply
to credit union service organizations
(CUSOs). There was much confusion
about how the IRS would collect this
excise tax, including what compensation
would be included like "excess remuneration" or an "excess parachute payment."
34

It was also not clear how federal credit
unions (FCUs) would report this tax to
the IRS. While state-chartered credit
unions file Form 990, there is not a similar requirement for federal credit unions.
Given the lack of clarity overall, NAFCU
began seeking clarification from the
IRS on this topic shortly after the TCJA
became law. NAFCU also asked Congress to address disparities in how compensation plans that existed before the
TCJA was enacted are treated for credit
unions as compared to for-profits. 
On Dec. 31, 2018, the IRS issued
interim guidance on how to report
this excise tax. This included clarifying
that the form for federal credit unions
to use is Form 4720 and its applicable
instructions. This was due by May 15,
2019, if a credit union was subject to
the tax on compensation paid in 2018.
Even then, there were differing
opinions about whether a federal
credit union's Form 4720 would be
subject to public disclosure under
a Freedom of Information Act request.
NAFCU reached out to the IRS for
clarification and received a response
clarifying that Form 4720 is "not made
publicly available unless filed by a
private foundation." According to the
IRS, existing guidance in the Internal
Revenue Manual, Section 3.20.12.2.1
titled "Public Inspection of Annual
Returns and Applications for Tax
Exempt Status" (www.irs.gov/irm/part3/
irm_03-020-012r) addresses the confidentiality of Form 4720.

Here is an excerpt for reference:
"If a member of the public requests
information the IRS is responsible for
providing the most complete and accurate copy of the forms to the customers.
IRC 6104 requires the IRS to make the
following available for public inspection:
... Form 4720, Return of Certain Excise
Taxes on Charities and Other Persons
Under Chapters 41 and 42 of IRC, if
filed by a private foundation. ...
Note: Form 4720 filed by individuals or organizations other than
private foundations, are not subject
to disclosure provisions of IRC 6104."
(Emphasis added.)
This cleared up the confusion some have
had about the confidentiality of Form
4720. Where a federal credit union is
required to file Form 4720 to address
excise taxes on employee compensation,
the form is not subject to public disclosure.
This issue implicates both benefits and
tax law, which are both highly specialized,
so credit unions and CUSOs that may
be impacted may wish to consult with
counsel to determine how this tax impacts
them. NAFCU members can also download our final regulation about the excise
tax (www.nafcu.org/19-ef-03-treasury-andirs-interim-guidance-under-section-4960).
Brandy Bruyere is NAFCU's vice president
of regulatory compliance.

THE NAFCU JOURNAL SEPTEMBER-OCTOBER 2019


http://www.nafcu.org/compliance-blog/tax-reform-questions-programming-note http://www.nafcu.org/compliance-blog/tax-reform-questions-programming-note http://www.nafcu.org/compliance-blog/tax-reform-questions-programming-note http://www.nafcu.org/compliance-blog/excise-taxes-and-boogeyman http://www.nafcu.org/compliance-blog/excise-taxes-and-boogeyman http://www.nafcu.org/compliance-blog/excise-taxes-and-boogeyman http://www.nafcu.org/nafcuservices/nafcu-services-blog/tax-law-changes-bring-new-excise-tax http://www.nafcu.org/nafcuservices/nafcu-services-blog/tax-law-changes-bring-new-excise-tax http://www.nafcu.org/nafcuservices/nafcu-services-blog/tax-law-changes-bring-new-excise-tax http://www.nafcu.org/19-ef-03-treasury-and-irs-interim-guidance-under-section-4960 http://www.nafcu.org/19-ef-03-treasury-and-irs-interim-guidance-under-section-4960 http://www.irs.gov/irm/part3/irm_03-020-012r http://www.irs.gov/irm/part3/irm_03-020-012r

The NAFCU Journal September-October 2019

Table of Contents for the Digital Edition of The NAFCU Journal September-October 2019

The NAFCU Journal September-October 2019
Contents
Conferences
From the Chair
Washington and Industry Briefs
The Bottom Line
Access to Money
The Best Indirect Growth Strategy
Big Moments, Bigger Wallet Share
Executive Spotlight
Management Insight
Compliance Central
Inside NAFCU Services
Industry Perspectives
From the President’s Desk
The NAFCU Journal September-October 2019 - The NAFCU Journal September-October 2019
The NAFCU Journal September-October 2019 - Cover2
The NAFCU Journal September-October 2019 - Contents
The NAFCU Journal September-October 2019 - 2
The NAFCU Journal September-October 2019 - Conferences
The NAFCU Journal September-October 2019 - From the Chair
The NAFCU Journal September-October 2019 - 5
The NAFCU Journal September-October 2019 - Washington and Industry Briefs
The NAFCU Journal September-October 2019 - 7
The NAFCU Journal September-October 2019 - The Bottom Line
The NAFCU Journal September-October 2019 - 9
The NAFCU Journal September-October 2019 - Access to Money
The NAFCU Journal September-October 2019 - 11
The NAFCU Journal September-October 2019 - 12
The NAFCU Journal September-October 2019 - 13
The NAFCU Journal September-October 2019 - 14
The NAFCU Journal September-October 2019 - 15
The NAFCU Journal September-October 2019 - The Best Indirect Growth Strategy
The NAFCU Journal September-October 2019 - 17
The NAFCU Journal September-October 2019 - 18
The NAFCU Journal September-October 2019 - 19
The NAFCU Journal September-October 2019 - 20
The NAFCU Journal September-October 2019 - 21
The NAFCU Journal September-October 2019 - 22
The NAFCU Journal September-October 2019 - 23
The NAFCU Journal September-October 2019 - Big Moments, Bigger Wallet Share
The NAFCU Journal September-October 2019 - 25
The NAFCU Journal September-October 2019 - 26
The NAFCU Journal September-October 2019 - 27
The NAFCU Journal September-October 2019 - 28
The NAFCU Journal September-October 2019 - 29
The NAFCU Journal September-October 2019 - Executive Spotlight
The NAFCU Journal September-October 2019 - 31
The NAFCU Journal September-October 2019 - Management Insight
The NAFCU Journal September-October 2019 - 33
The NAFCU Journal September-October 2019 - Compliance Central
The NAFCU Journal September-October 2019 - 35
The NAFCU Journal September-October 2019 - Inside NAFCU Services
The NAFCU Journal September-October 2019 - 37
The NAFCU Journal September-October 2019 - 38
The NAFCU Journal September-October 2019 - 39
The NAFCU Journal September-October 2019 - Industry Perspectives
The NAFCU Journal September-October 2019 - 41
The NAFCU Journal September-October 2019 - 42
The NAFCU Journal September-October 2019 - 43
The NAFCU Journal September-October 2019 - From the President’s Desk
The NAFCU Journal September-October 2019 - Cover3
The NAFCU Journal September-October 2019 - Cover4
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