The new tax law brought an unpleasant surprise for many tax-exempt organizations by imposing a 21 percent excise tax on compensation in excess of $1 million and on certain ‘‘parachute payments.’’ Organizations, including public universities, state and local government entities, charitable organizations, public utilities, farmers’ cooperatives, and other organizations operated without an expectation of retaining profits may now find themselves subject to either complying with the new compensation limit or paying the tax. While the changes to the compensation limit for companies with publicly traded securities included a transition rule, surprisingly, the addition of this compensation limit to entities—that had not faced this type of hard line limit - did not provide for any transition for existing contracts.

Originally published in Bloomberg Daily Tax Report® - February 20, 2018.