IR-2026-73, June 5, 2026

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued Notice 2026-36 announcing intent to issue proposed regulations addressing the tax on excessive compensation and excess parachute payments to employees of tax-exempt organizations under the One, Big, Beautiful Bill.

“The new law strengthens the accountability of tax-exempt organizations by expanding tax compliance requirements for certain organizations paying excessive compensation and excess parachute payments to their executives,” said IRS Chief Executive Officer Frank J. Bisignano. “It broadens the scope of tax from a limited group of executives to potentially any highly compensated employee.”

Expanded application of tax on excess compensation under OBBB

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

Notice 2026-36 clarifies that the amended definition of covered employee, which will be addressed in the forthcoming proposed regulations, includes only:

• Any individual who was an employee of an ATEO in any tax year beginning after Dec. 31, 2016, and on or before Dec. 31, 2025, if the individual was a covered employee for the tax year under prior law, and
• Any individual who is an employee of an ATEO in any tax year beginning after Dec. 31, 2025 (unless a covered employee exception applies).

The notice also sets out important exceptions for individuals who provide volunteer services to tax-exempt organizations that could otherwise be impacted by the OBBB changes. Specifically, it allows ATEOs and their related organizations to rely on the limited hours and nonexempt funds exceptions to the post-OBBB definition of covered employee until further guidance is issued.

Treasury and the IRS anticipate the forthcoming proposed regulations will include covered employee exceptions for limited hours and nonexempt funds. The proposed regulations are not expected to apply to tax years beginning before the issuance of final regulations.

More information

Treasury and the IRS request comments on all aspects of this notice and any other issues that should be addressed in the forthcoming proposed regulations by Aug. 4, 2026. Comments are particularly requested on the issues raised by today’s notice. Complete instructions on submitting comments are included in the notice. 

For more information, see One, Big, Beautiful Bill Provisions on IRS.gov.