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January 11, 2021

BREAKING TAX NEWS | IRS releases final regulations on executive compensation for tax-exempt organizations with only minor changes to the proposed rules

On January 11, 2021, the IRS released final regulations under IRC Section 4960, which imposes an excise tax on "applicable tax-exempt organizations" (ATEOs) and "related organizations." The excise tax is based on remuneration that is (1) paid for a tax year to a "covered employee" and (2) either exceeds $1 million (excess compensation) or is an excess parachute payment.

The final regulations retain the basic approach of the proposed regulations with only minor modifications to the proposed rules.

The final regulations apply to tax years beginning in 2022. Until then, taxpayers can rely on the interim guidance in Notice 2019-09 (see Tax Alert 2019-0145), the proposed regulations (see Tax Alert 2020-1559), the final regulations, or a reasonable, good faith interpretation of the statute that includes consideration of any relevant legislative history.

A Tax Alert is forthcoming.