Selected Provisions of Coronavirus and FY 2021 Appropriations Legislation

Published date01 March 2021
Date01 March 2021
March 2021 3
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
Covered Employees
A covered employee is an individual who is one of
the five highest-compensated employees of an ATEO for
a tax year or was a covered employee for a preceding
year (beginning in 2017). The regulations provide rules
for identifying these five highest-paid individuals.
Whether an employee is a covered employee is deter-
mined separately for each tax-exempt organization. An
employee may be a covered employee of more than one
exempt organization in a related group of organizations
for a year.
A concern is whether for-profit businesses become
subject to this excise tax because their executives are
volunteers at related organizations. The regulations
ameliorate this problem, by means of a limited-hours
exception, a nonexempt funds exception, and a limit-
ed-services exception (all summarized in the summary of
the proposed regulations).
Medical Services
Remuneration, for these purposes, does not include
the portion of any remuneration paid by an ATEO to a
licensed medical professional for medical or veterinary
services. A substantially similar exception applies in con-
nection with the definition of parachute payment.
The regulations define medical services as the diag-
nosis, cure, mitigation, treatment, or prevention of
disease in humans or animals; services provided for the
purpose of affecting any structure or function of the
human or animal body; and other services integral to
providing these medical services that are directly per-
formed by a licensed medical professional. Compensa-
tion for teaching or research services does not qualify for
the exclusion. The phrase licensed medical professional
is defined.
Related Organizations
The term related organization means any person or
governmental entity (domestic or foreign) that meets
one or more of these tests: the person or governmental
entity (1) controls or is controlled by the ATEO, (2)is
controlled by one or more persons that control the
exempt organization, (3) is a supported organization
(IRC § 509(f)(3)) with respect to the exempt organiza-
tion, or (4) is a supporting organization (IRC § 509(a)(3))
with respect to the exempt organization. A separate rule
applies in connection with voluntary employees’ benefi-
ciary associations.
The regulations generally utilize the definition of con-
trol used in the context of controlling organizations in the
unrelated business income setting (IRC § 512(b)(13)(D)).
The regulation also sets forth a rule of control in the con-
text of nonstock organizations, entailing a more-than-50-
percent test, a removal power test, and a representatives
test. There is a control test for brother-sister arrange-
ments. Constructive ownership rules (IRC § 318) apply.
Parachute Payments
The regulations capaciously address the matter of the
excise tax on excess parachute payments. They include
definitions relating to this phrase.
A parachute payment generally is any payment in
the nature of compensation to or for the benefit of a
covered employee if the payment is contingent on the
employee’s separation from employment and the aggre-
gate present value of the payments in the nature of
compensation to or for the benefit of the individual that
are contingent on the separation equals or exceeds an
amount equal to three times the base amount. There are
exclusions, such as compensation for medical services.
An excess parachute payment is an amount equal to the
excess of a parachute payment over the portion of the
base amount allocated to the payment.
The Consolidated Appropriations Act, 2021, was
signed into law on December 27 (Pub. L. No. 116-260).
This massive piece of legislation includes provisions
comprising the Taxpayer Certainty and Disaster Relief
Act of 2020 (Division EE of the appropriations act) and
Additional Coronavirus Response and Relief (Division N
of the appropriations act).
The Taxpayer Certainty and Disaster Relief Act
includes provisions extending through 2021 the $300
above-the-line charitable deduction (Act § 212) and
modification of the charitable deduction limitations (Act
§ 213) that originally became law last March (summa-
rized in the June 2020 issue).
The Coronavirus Response and Relief legislation
includes the Covid-related Tax Relief Act of 2020, which
revives the Paycheck Protection Program, includes the
Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act (including eligibility of IRC § 501(c)(6)
entities (Act § 318)), and extends unemployment insur-
ance programs.
Title I of Division E of the appropriations act pro-
vides appropriations for the Department of the Treasury.
A section of this title states that, during FY 2021, no
funds may be used by Treasury or the IRS to issue or
finalize any regulation or other guidance related to the
standard used to determine whether an organization is
operated exclusively for the promotion of social welfare
(for purposes of IRC § 501(c)(4)) (§ 122). Another section
provides that funds may not be used by the IRS to target
US citizens for exercising any right guaranteed by the
First Amendment to the US Constitution (§ 106). A third

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