
Executive Compensation Excise Tax: Challenges and Strategies
Section 4960 of the Internal Revenue Code (IRC) imposes a 21% excise tax on remuneration in excess of $1 million and any excess parachute payment paid by an applicable tax-exempt organization (ATEO) or its affiliates to any covered employee. On Jan. 19, 2021, the IRS released final regulations that affect ATEOs and related entities. While the 2021 final regulations generally follow the proposed regulations released on June 11, 2020, the final regulations include several important changes. Of particular significance, the final regulations expand the exceptions where employees of a for-profit entity related to an ATEO will not be treated as covered employees. Although the final regulations are effective for taxable years beginning after Dec. 31, 2021, taxpayers can apply them retroactively to 2018, when Section 4960 first became effective.