TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, December 27, 2017

New Tax Law Takes Aim At Higher Education’s Millionaires Club

One MillionChronicle of Higher Education, New Tax Law Takes Aim at Higher Education’s Millionaires Club:

[The new tax law imposes] a 21-percent tax on annual compensation in excess of $1 million paid to the five highest-paid employees of a nonprofit group — including college presidents, chancellors, and coaches. For medical professionals, however, compensation that is directly related to medical or veterinary services would not be taken into account. ...

According to an analysis by The Chronicle, America’s private, nonprofit colleges had 158 million-dollar employees in the 2015 calendar year, excluding medical staff members. The highest earners primarily included chief executives, athletics staff members, and investment officers. Mike Krzyzewski, head coach of the men’s basketball team at Duke University, topped the list, earning $7.4 million in 2015.

The Chronicle’s analysis is based on the latest available Form 990s of the 500 private, nonprofit colleges with the largest endowments. Reportable taxable compensation is the sum of base salaries, bonuses, and other compensation paid to employees by the institution and its related organizations. It remains to be seen whether the IRS will use the same Form 990s to levy this new tax.

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Many non-profits currently avoid the 990 reporting by having additional funds paid from controlled entities. I haven’t seen the legislation, but wonder if in getting to $1 million they are required to aggregate all money received, directly and indirectly. If not, non-profits will be able to avoid this new tax.

Posted by: Beau Baez | Dec 27, 2017 5:34:15 AM

Good. About time. I spent 10 years auditing not-for-profits for the State of New York. Talk about a bunch of greedy sxxx. The biggest scam was the "housing allowances". Time for the "charities" to return to their charitable mission.

Posted by: The Pamphleteer | Dec 27, 2017 9:40:02 AM

21 percent rate is no accident. Conference report makes clear that the provision is an attempt to create some sort of conformity between C corps (see Sec. 162(m)) and tax exempts. It's a bit crude, but that was the intent.

Posted by: HTA | Dec 28, 2017 3:58:25 PM

*and the section itself refers to the highest rate in Sec. 11.

Remind me of the constitutional issues of the Federal government taxing the States and their instrumentalities ("power to tax is the power to destroy", federalism, etc.)? Sec. 511 specifically calls out public colleges and universities, but I was never clear on the constitutional limitations.

Posted by: HTA | Dec 28, 2017 4:18:53 PM

It is also amazing how much money these guys get from outside sources like paid corporate boards. They spend much time on their business interests when they should be paying attention to their day job to these endeavors.

Posted by: klombardo | Dec 29, 2017 10:14:57 AM