Law360 (June 5, 2020, 4:53 PM EDT) -- The Internal Revenue Service proposed guidance Friday that would relieve for-profit businesses from having to pay an unexpected 21% excise tax on the compensation their top executives earn when they volunteer at a related nonprofit organization.
Guidance proposed by the IRS on Friday addresses a 2017 provision that subjects for-profit businesses to a 21% excise tax when top executives volunteer at related nonprofits.
The proposed rules cover a provision of the 2017 Tax Cuts and Jobs Act that imposed a 21% excise tax on executive pay greater than $1 million and excess parachute pay to a nonprofit's five mostly highly compensated employees. A 2019 notice explained how to calculate the tax, but that guidance drew criticism because it would subject a for-profit business to the tax if a highly paid officer volunteered at a related tax-exempt organization.
The proposed rules would create an exception to the tax if such a volunteer receives no compensation from or works a relatively limited number of hours for the related nonprofit.
"After consideration of the comments received, the Treasury Department and the IRS propose exceptions to the definition of 'employee' and 'covered employee' and the rules for identifying the five highest compensated employees to address these concerns," the proposed rules said.
By Amy Lee Rosen