By D. Larry Crumbley Contributor to South-Western Federal Taxation Series

An excise tax at Federal corporate tax rate (21%) is levied on the five highest-paid employees of tax-exempt organisations whose remuneration exceeds $1million or the employee receives excessive parachute payments. This excise tax is applicable to universities and their athletic organizations (e.g. coaches).
IRC SS4960(a), states that 21 percent excise taxes are applied to any remuneration paid in the tax year for a covered employee exceeding $1 million. Wages include both wages and nonqualified, unfunded deferred compensatory plans or arrangements that have been established by state and local governments as tax-exempt entities (both universities and athletic associations). At least 240 coaches and athletic director earn more than $1,000,000 (e.g., Alabama or Florida State). This excise tax may also apply to presidents and other high-paid university employees.
This means that a parachute payment could include a coach’s pay clause. The clause allows for compensation up to the termination of the contract.
A coach may receive $500,000 per annum in compensation and is terminated for no reason with four years remaining on his contract. Roger Denny and Robert Lattinville claim that the excise taxes would be applied to $500,000 (the present amount of the amount greater than his base amount or $105,000 payable to the university).
There is some debate about whether the new excise taxes apply to public universities. Public universities owe their tax exempt status to the implied statute immunity. Ellen Aprill suggests that the Code language does not state that the new excise taxes will apply to organizations exempt from tax by virtue of implied statutory immunity.
Ideas for Discussions and Assignments
How can this excise tax help to increase job security and tenure for major university coaches?
Find the contract for the basketball or football coach at your university. What excise tax will your university have to pay for?
This excise tax will slow down the escalating salaries of coaches.
How can universities free vendors and right holders from their compensation obligations?
Visit to find John J. Fisher, Jr. (Jimbo Fisher), a 14-page, 10-year, $75,000,000 football contract with Texas A&M University. See clauses 2.9 to 5.3 and 5.4.
What will Texas A&M owe Fisher if they fire Fisher for no reason after six years? When?
Calculate the Texas A&M University’s annual excise tax.
Does the new excise duty apply to public universities, as it stands now? Find out the answer.
IRC SSSS4960, 457(f).
Roger Denny and Robert Lattinville, How the New Excise tax Impacts Coach Compensation. website (College Station TX), John J. Fisher Jr. Texas A&M University football contract.
Ellen Aprill, Congress Fumbles the Ball On Section 4960, December 26, 2017.
R. Schmalbeck and L. Zelenak, The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax, Southern California Law Review, forthcoming,

Chapter 19 – SWFT Individuals
Chapter 15: SWFT Corporations
SWFT Comprehensive: Chapter 23

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