The IRS released proposed regulations "intended to provide comprehensive guidance" on IRC Section 4960, which imposes an excise tax on "applicable tax-exempt organizations" at the current rate of 21% based on remuneration that is (1) paid in a tax year to a "covered employee" and (2) either exceeds $1 million or is an excess parachute payment. The proposed regulations are based in large part on Notice 2019-09 (see Tax Alert 2019-0145).

The proposed regulations would define relevant terms as well as provide rules for determining:

• The amount of remuneration paid for a tax year (including for purposes of identifying covered employees)
• Whether excess remuneration is paid and in what amount
• Whether an excess parachute payment is paid and in what amount
• The allocation of liability for the excise tax among related organizations

The proposed regulations would provide much-awaited clarity on subjects that commenters have been questioning, such as whether volunteers who are employees of related taxable organizations can trigger the tax.

The regulations are proposed to apply to tax years beginning on or after the date the final regulations are published in the Federal Register (June 11, 2020). Comments must be received by August 10, 2020.

A Tax Alert is forthcoming.