AICPA calls for clarity on expanded excise tax rules for non-profits

The American Institute of CPAs (AICPA) has urged the US Treasury Department and the Internal Revenue Service (IRS) to issue guidance on changes to a tax rule affecting tax-exempt organisations.

In a letter to the IRS, the AICPA called on Treasury and the agency to provide transition relief and clarify how Section 4960 will apply following amendments made last year under the One Big Beautiful Bill Act (OBBBA).

Section 4960 imposes a 21% excise charge on the portion of remuneration above $1m paid by applicable tax‑exempt organisations (ATEOs) to their “covered employees”.

When the provision was first enacted, “covered employee” referred only to the five most highly paid workers at an ATEO, plus anyone who had been treated as a covered employee in any previous tax year.

Last year’s OBBBA altered that position. It broadened the definition to include all employees of an ATEO, capturing anyone employed in any tax year starting after 31 December 2016.

The expanded definition is scheduled to take effect for the first tax year that begins after 31 December 2025.

In its submission, the AICPA recommended changes in several areas.

Among its recommendations, it asked for transition relief for fiscal-year filers to avoid outcomes it says could effectively apply the change to remuneration paid before the OBBBA amendments took effect.

It also requests relief for ATEOs and related organisations that currently depend on existing regulatory carve‑outs from the “covered employee” definition.

Further, the letter calls for a de minimis exception for short-term or part-time workers such as interns.

It also addresses the position of individuals working for related entities who act as traditional unpaid volunteers for an ATEO.

AICPA Tax Policy and Advocacy senior manager Scott Klein said: “Our letter requests guidance providing transition relief for fiscal-year filers; extension of the limited hours, non-exempt funds and limited services exceptions; and a clear regulatory exception so unpaid public volunteers are not treated as covered employees.

“Without this guidance, non-profits and related organisations could face unexpected excise taxes, added compliance burdens and heightened financial risk under current law.”