US Treasury, IRS to propose rules on tax-exempt executive compensation

The US Department of the Treasury and the Internal Revenue Service (IRS) program to suggest regulations connected however an excise taxation volition use to excessive compensation and “excess parachute payments”.

In Notice 2026–36, Treasury and the IRS said the forthcoming rules would code payments made by applicable tax-exempt organisations nether the One, Big, Beautiful Bill (OBBB).

Previously, this taxation was constricted to the 5 highest‑paid employees of an applicable tax‑exempt organisation (ATEO) successful each taxation year.

Under the OBBB, the scope widens to immoderate worker whose yearly remuneration exceeds $1m, arsenic good arsenic to those receiving excess parachute payments.

Notice 2026–36 explains that the updated “covered employee” explanation volition use to individuals who worked for an ATEO successful immoderate taxation twelvemonth opening aft 31 December 2016 and connected oregon earlier 31 December 2025.

It volition besides use to anyone employed by an ATEO successful a taxation twelvemonth opening aft 31 December 2025, unless a circumstantial objection for covered employees is available.

However, the announcement preserves cardinal exceptions for volunteers.

ATEOs and related organisations whitethorn proceed to trust connected the “limited hours” and “nonexempt funds” exceptions nether the post‑OBBB explanation of covered worker until further guidance is issued.

Treasury and the IRS expect the forthcoming regulations to formally incorporated these exceptions.

The projected rules are not expected to use to taxation years that statesman earlier last regulations are issued.

IRS CEO Frank J. Bisignano said: “The caller instrumentality strengthens the accountability of tax-exempt organisations by expanding taxation compliance requirements for definite organisations paying excessive compensation and excess parachute payments to their executives.

“It broadens the scope of taxation from a constricted radical of executives to perchance immoderate highly compensated employee.”

Last week, the American Institute of Certified Public Accountants asked the US Treasury and the IRS to clarify projected regulations for Trump Accounts.

"US Treasury, IRS to suggest rules connected tax-exempt enforcement compensation" was primitively created and published by The Accountant, a GlobalData owned brand.

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