Final Excess Compensation Regs Issued

Published date01 March 2021
Date01 March 2021
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
organizations and their donors grapple with disclosure
requirements and the attendant threats to confidential-
ity.” [28.11(i)]
The Department of the Treasury and the IRS, on Janu-
ary 11, published final regulations in amplification of the
law (IRC § 4960) imposing an excise tax on most types of
tax-exempt organizations in connection with payment of
remuneration of employees in excess of $1 million and
excess parachute payments by these organizations (T.D.
9938). The Federal Register publication date for these
regulations is January 19.
The essence of this body of law is that an applica-
ble tax-exempt organization that, for a tax year, pays a
covered employee remuneration in excess of $1 million
or any excess parachute payment is subject to an excise
tax (currently, 21 percent) on the excess amount of the
remuneration, plus excess parachute payments, paid
during that year (IRC § 4960(a)).
The regulations in their proposed form are summa-
rized in the August 2020 issue. The preamble to the final
regulations states (in an observation that is not startling
but also not particularly informative) that the final reg-
ulations “retain the basic approach and structure of the
proposed regulations, with certain revisions.”
This body of law is effective for tax years beginning
after December 31, 2017.
Overview of Regulations
These regulations restate certain statutory definitions
and provide definitions for various other terms. Thus, the
regulations define (among others) the terms applicable
tax-exempt organization (Reg. § 53.4960-1(b)), covered
employee (Reg. § 53.4960-1(d)), employee (Reg. §
53.4960-1(e)), employer (Reg. § 53.4960-1(f)), medical
services (Reg. § 53.4960-1(g)), and related organization
(Reg. § 53.4960-1(i)).
The regulations further define the term remuneration
(Reg. § 53.4960-2(a)(1)) and address the exclusion of
remuneration for medical services (Reg. § 53.4960-2(a)
(2)). They define the term parachute payment (Reg. §
53.4960-3(a)(1)) and provide several exclusions from
that term (Reg. § 53.4960-3(a)(2)). They summarize the
rules concerning liability, reporting, and payment of the
excise taxes (Reg. § 53.4960-4).
Applicable Tax-Exempt Organization
The term applicable tax-exempt organization includes
organizations that generally are tax-exempt (IRC § 50(a))
and those that have their income excluded from taxation
(IRC § 115(1)). They also include political organizations
(IRC § 527) and farmers’ cooperatives (IRC § 521).
The discussion as to whether a state college or uni-
versity may qualify as an ATEO, contained in the pream-
ble to the proposed regulations and summarized in the
August 2020 issue, does not appear in the preamble to
the final regulations.
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