The Internal Revenue Service (IRS) and the Department of the Treasury issued a notice on Friday, announcing their plan to issue proposed regulation concerning taxation on high compensation paid by tax-exempt organizations to employees.
The notice relates to excessive compensation and excess parachute payments, the IRS said in a June 5 statement. Parachute payments are made to key employees when they are terminated or when the business undergoes a merger or acquisition. An excess parachute payment is any such payment that exceeds three times an employee’s average annual compensation for the most recent five years.
Section 4960 of the Internal Revenue Code imposes an excise tax on any nonprofit or tax-exempt organization paying an employee more than $1 million in remuneration in a tax year or an excess parachute payment, according to the notice….