Section 4960’s Failure to Tax Governmental Entities

Дата публикации: 08-10-2026 00:00:00

New section 4960 imposes a 21% excise tax on certain organizations not subject to income tax, including organizations exempt under section 501(c)(3) and those for which income is excluded from taxation under section 115(1), if any of their five highest paid employees have annual compensation above $1 million. (It also imposes the tax on “excess parachute payments,” as defined in the statute.) In December, 2017, I wrote a blog post on “Medium: Whatever Source Derived,” arguing that, whatever the Congressional intent, the language of the statute did not reach states, their political subdivisions or integral parts of either.In particular, the post contrasted the basis of income tax exemption for states and their political subdivision to entities that fall under section 115(1). Section 115(1) excludes from gross income “income derived from...the exercise of essential governmental function and accruing to a state or any political subdivision thereof.” This provision, however,...

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