Section 4960 of the Internal Revenue Code of 1986 (IRC), as
amended, imposes an excise tax on compensation of certain highly
compensated employees of tax-exempt organizations. In an apparent
attempt to level the playing field for tax-exempt and public
corporations, Section 4960 imposes an excise tax of 21 percent on
compensation paid to a covered employee in excess of $1 million and
on any excess parachute payments paid to a covered employee. For
purposes of Section 4960, any remuneration paid to a covered
employee by a related entity is included in the calculation of the
covered employee's total remuneration for the year.
Under Section 4960, a "covered employee" is any
employee (or former employee) who is one of the five
highest-compensated employees of the organization for the taxable
year or was a covered employee of the organization (or any
predecessor) for any preceding taxable year. Organizations must
determine their covered employees each year, beginning with
