The “intermediate sanctions” rules under Section 4958 of the Internal Revenue Code have long governed the payment of compensation to executives of public charities. While these rules are highly prescriptive, if followed, they offer taxpayers a significant advantage in the form or a rebuttable presumption of reasonableness. While there was concern among tax-exempts that the tax bill might reduce or even eliminate the presumption of reasonableness, that turned out not to be the case. But the final version of the legislation for the first time imposed a tax on certain excess compensation and excess parachute payments, which we discuss in more detail below.
Written by Alden J. Bianchi
As applicable large employers grapple with the Affordable Care Act’s (ACA) employer shared responsibility (pay-or-play) rules, two questions arise with notable frequency:
- Do I have to offer the same group health insurance coverage on the same terms to all my full-time employees?
- Do I have to offer pre-tax treatment of premiums to all my employees?
These questions—which arise under Internal Revenue Code §§ 105(h) and 125, and Public Health Service Act § 2716—are important as employers endeavor to navigate the penalty provisions of Code § 4980H. They are particularly relevant in the case of employers that previously did not offer coverage to a large group of employees (e.g., in industries such as staffing, restaurants, retail, hospitality and franchising, among others). As we explain below, what makes these questions challenging is that theory varies widely from practice for various reasons. The present issues are ripe for regulatory attention, and it is entirely likely that today’s answers will not be tomorrow’s answers.