26 U.S.C. § 4960 — Tax on excess tax-exempt organization executive compensation

(a) The tax equals the rate under section 11 multiplied by the sum of (1) the covered employee’s remuneration paid by an applicable tax-exempt organization for the taxable year, excluding excess parachute payments, that is more than $1,000,000, and (2) any excess parachute payment paid by the organization to a covered employee. Remuneration is treated as paid when there is no substantial risk of forfeiture of the rights to it, as described in section 457(f)(3)(B). (b) The employer is liable for the tax. (c)(1) “Applicable tax-exempt organization” means an organization that, for the taxable year, (A) is exempt from tax under section 501(a), (B) is a farmers’ cooperative organization described in section 521(b)(1), (C) has income excluded from tax under section 115(1), or (D) is a political organization described in section 527(e)(1). (2) “Covered employee” means any employee of an applicable tax-exempt organization or any predecessor, and any former employee of the organization or predecessor who was an employee during any taxable year beginning after December 31, 2016. (3)(A) “Remuneration” means wages as defined in section 3401(a), but does not include a designated Roth contribution as defined in section 402A(c), and includes amounts required to be included in gross income under section 457(f). (B) Remuneration does not include the part of any remuneration paid to a licensed medical professional, including a veterinarian, that is for that professional’s medical or veterinary services. (4)(A) A covered employee’s remuneration from an applicable tax-exempt organization includes remuneration paid for the employee’s employment by any related person or governmental entity. (B) A person or governmental entity is related to the organization if it (i) controls, or is controlled by, the organization, (ii) is controlled by one or more persons that control the organization, (iii) is a supported organization, as defined in section 509(f)(3), during the taxable year with respect to the organization, (iv) is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or (v), for an organization that is a voluntary employees’ beneficiary association described in section 501(c)(9), establishes, maintains, or contributes to that association. (C) If remuneration from more than one employer is counted, each employer is liable for the tax in the same proportion that the remuneration it paid to the employee bears to the remuneration all those employers paid to the employee. (5)(A) “Excess parachute payment” means the amount by which a parachute payment is greater than the part of the base amount allocated to that payment. (B) “Parachute payment” means a payment in the nature of compensation to or for the benefit of a covered employee if (i) the payment is contingent on the employee’s separation from employment with the employer, and (ii) the total present value of the payments in the nature of compensation to or for the benefit of that individual that are contingent on that separation is at least three times the base amount. (C) A parachute payment does not include (i) a payment described in section 280G(b)(6), concerning the exemption for payments under qualified plans, (ii) a payment made under or to an annuity contract described in section 403(b) or a plan described in section 457(b), (iii) a payment to a licensed medical professional, including a veterinarian, to the extent it is for that professional’s medical or veterinary services, or (iv) a payment to an individual who is not a highly compensated employee as defined in section 414(q). (D) Rules similar to section 280G(b)(3) apply to determine the base amount. (E) Rules similar to paragraphs (3) and (4) of section 280G(d) apply to property transfers and present value. (6) Remuneration for which a deduction is disallowed under section 162(m) is not counted for this section. (d) The Secretary must issue regulations needed to prevent avoidance of this tax, including avoidance through performing services other than as an employee or providing compensation through a pass-through or other entity to avoid the tax.