Professor Elaine Waterhouse Wilson Publishes New Work in Loyola University Chicago Law Journal

This Article examines the fundamental flaws in Section 4960 of the Internal Revenue Code, which imposes an excise tax on nonprofit executive compensation exceeding $1 million. The provision, enacted as part of the 2017 Tax Cuts and Jobs Act, rests on three problematic fallacies. First, Congress incorrectly assumed that an excise tax on nonprofits would function equivalently to the elimination of a tax deduction for excessive compensation in the for-profit sector under Section 162(m). Second, lawmakers failed to recognize that nonprofits respond differently to tax incentives than for-profit entities due to their distinct governance structures and sensitivity to public opinion about overhead costs. Third, and most significantly, Section 4960 was never truly intended to regulate excessive compensation, but rather serves to reinforce harmful narratives about nonprofit wages while raising revenue from an already disfavored sector. The Article argues that Section 4960's mechanical approach ignores the complex realities of nonprofit compensation and governance while potentially damaging organizational capacity. Rather than relying on bright-line excise taxes, meaningful reform requires addressing underlying issues. This Article concludes that Section 4960 represents a misguided attempt to regulate nonprofit compensation that may ultimately harm the charitable sector it purports to protect.