3528 / Are there any exceptions to the application of the 21 percent excise tax on certain individuals who provide services for tax-exempt organizations?
The proposed regulations also contain exceptions designed to exempt certain individuals who provide minimal services for the ATEO. This new rule is meant to exclude “employees” who donate services to tax-exempt organizations.
Under the exceptions, (1) a director is not an employee in the capacity as a director and (2) an officer performing minor or no services and not receiving any remuneration for those services is not an employee. Employees of a related non-ATEO are not considered for purposes of determining the five highest-compensated employees if they are never employees of the ATEO. In addition, individuals who receive no remuneration (or a legally binding right to remuneration) from the ATEO or a related organization cannot be among the ATEO’s five highest-compensated employees.1
Under the limited hours exception, an ATEO’s five highest-compensated employees also exclude an employee of the ATEO who receives no remuneration from the ATEO and performs only limited services for the ATEO, which means that no more than 10 percent of total annual hours worked for the ATEO and related organizations are for services performed for the ATEO.2 An employee who performs fewer than 100 hours of services as an employee of an ATEO and its related ATEOs is treated as having worked less than 10 percent of total hours for the ATEO and related ATEOs.3