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

Treasury and the IRS recently announced plans to propose regulations on how an excise tax will apply to excessive compensation and “excess parachute payments.”

In Notice 2026-36, Treasury and the IRS said the forthcoming rules would address payments made by applicable tax-exempt organizations under the One Big Beautiful Bill Act.

The OBBBA expanded the application of excise tax on excess compensation by broadening the definition of covered employee of an applicable tax-exempt organization.

Previously, this tax applied to the five highest-compensated employees for the tax year. Now the tax may apply to any employee with compensation exceeding $1 million in a tax year or an excess parachute payment.

The notice also sets out important exceptions for individuals who provide volunteer services to tax-exempt organizations that could otherwise be impacted by the OBBBA changes. Learn more.