Non-Profit Compensation Limitation

119th CONGRESS 2d Session H.R. ___ To amend the Internal Revenue Code of 1986 to establish a maximum compensation limit for employees of tax-exempt organizations described in section 501(c)(3), and to provide for automatic revocation of tax-exempt status for organizations that exceed such limit. _______________________________________________________________________ IN THE HOUSE OF REPRESENTATIVES M__. ______ introduced the following bill; which was referred to the Committee on Ways and Means _______________________________________________________________________ A BILL To amend the Internal Revenue Code of 1986 to establish a maximum compensation limit for employees of tax-exempt organizations described in section 501(c)(3), and to provide for automatic revocation of tax-exempt status for organizations that exceed such limit. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE. This Act may be cited as the "Non-Profit Compensation Limitation Act of 2026". SEC. 2. FINDINGS. Congress finds the following: (1) Organizations described in section 501(c)(3) of the Internal Revenue Code of 1986 receive tax-exempt status on the basis that they are organized and operated exclusively for charitable, religious, educational, scientific, or other exempt purposes for the benefit of the public. (2) Contributions to such organizations are deductible under section 170 of such Code, resulting in a reduction of Federal tax revenue. The value of such deduction to the donor increases with the donor's marginal tax rate, with taxpayers in the highest bracket (37 percent) receiving the largest per-dollar benefit. (3) The aggregate cost to the Federal Government of the charitable contribution deduction exceeds $70,000,000,000 annually, representing revenue that must be offset through other means. (4) Certain executives of organizations described in section 501(c)(3) of such Code receive total compensation in excess of $30,000,000 per year, which is inconsistent with the charitable purposes for which tax-exempt status is granted. (5) Excessive executive compensation at tax-exempt organizations undermines public confidence in the nonprofit sector and diverts resources from the charitable missions such organizations are intended to serve. (6) While section 4960 of such Code imposes an excise tax on remuneration in excess of $1,000,000 paid by applicable tax-exempt organizations, such tax has proven insufficient to curtail excessive compensation at the largest nonprofit organizations. (7) A maximum compensation limit, enforced through automatic revocation of tax-exempt status, is necessary to ensure that the substantial public subsidy provided through the charitable contribution deduction and tax exemption is used in furtherance of charitable purposes rather than for the private enrichment of executives. SEC. 3. MAXIMUM COMPENSATION LIMIT FOR TAX-EXEMPT ORGANIZATIONS. (a) In General.--Chapter 42 of the Internal Revenue Code of 1986 is amended by adding at the end of subchapter D the following new section: "SEC. 4960A. REVOCATION OF EXEMPTION FOR EXCESSIVE EMPLOYEE COMPENSATION. "(a) Compensation Limitation.--No organization described in section 501(c)(3) which is exempt from taxation under section 501(a) shall pay or cause to be paid total compensation in excess of $3,000,000 to any employee (including any officer, director, trustee, or key employee) for any taxable year. "(b) Automatic Revocation of Exempt Status.-- "(1) IN GENERAL.--If any organization described in subsection (a) pays or causes to be paid total compensation in excess of $3,000,000 to any employee for any taxable year, such organization's status as an organization exempt from tax under section 501(a) shall be considered revoked as of the first day of the taxable year in which such excess compensation was paid. "(2) EFFECT OF REVOCATION.--Upon revocation under paragraph (1)-- "(A) the organization shall no longer be exempt from taxation under section 501(a), "(B) the organization shall no longer be described in section 170(c)(2) for purposes of the deduction allowed under section 170, "(C) the organization shall be liable for all Federal income taxes as if it were a taxable corporation under section 11 for the taxable year in which the revocation takes effect and all subsequent taxable years, and "(D) contributions to such organization shall not be deductible under section 170 for any taxable year beginning on or after the date of revocation. "(3) NOTIFICATION.--Not later than 90 days after the Secretary determines that a revocation has occurred under paragraph (1), the Secretary shall-- "(A) notify the organization in writing of the revocation and the basis therefor, "(B) publish the name and employer identification number of the organization on a publicly accessible list maintained by the Secretary, and "(C) notify the appropriate State attorney general or State official charged with oversight of charitable organizations in the State in which the organization is incorporated or has its principal office. "(c) Total Compensation Defined.--For purposes of this section-- "(1) IN GENERAL.--The term 'total compensation' means the aggregate of all remuneration, benefits, and other economic value provided to or for the benefit of an employee by the organization (or any related person or entity, as defined in section 4960(c)(4)(B)) for services performed for the organization during the taxable year, including-- "(A) salary, wages, fees, and other cash compensation, "(B) bonuses and incentive payments, "(C) the value of any equity-like interests, phantom equity, or similar arrangements, "(D) contributions to or accruals under any qualified or nonqualified deferred compensation plan, determined at the time of vesting (within the meaning of section 457(f)(3)(B)), "(E) the value of any fringe benefits not excluded from gross income under sections 119, 127, 129, or 132 (other than de minimis fringe benefits described in section 132(a)(4)), "(F) the value of housing, transportation, or other in-kind benefits provided by the organization, "(G) severance payments and payments under noncompete agreements, "(H) premiums for life insurance, disability insurance, or other insurance policies paid by the organization for the benefit of the employee (other than group health plan coverage), and "(I) any other economic benefit provided by the organization to the employee, as determined by the Secretary. "(2) AGGREGATION RULE.--All compensation paid by the organization and any related person or entity (as defined in section 4960(c)(4)(B)) with respect to an employee's services for the organization shall be aggregated for purposes of determining total compensation under this section. "(3) EXCEPTION FOR MEDICAL PROFESSIONALS.--In the case of a licensed medical professional (including a veterinarian), total compensation shall not include the portion of any remuneration which is for the direct performance of medical or veterinary services by such professional, provided that such portion is separately stated and substantiated in the records of the organization. "(d) Employee Defined.--For purposes of this section-- "(1) IN GENERAL.--The term 'employee' includes-- "(A) any officer, director, or trustee of the organization, "(B) any key employee (as defined in section 416(i)(1)), "(C) any former employee receiving compensation for services performed during the taxable year, and "(D) any independent contractor who performs services for the organization, if such independent contractor would be treated as an employee under the common law rules applied by the Secretary for purposes of employment tax. "(2) ANTI-AVOIDANCE RULE.--The Secretary may treat any individual as an employee for purposes of this section if the Secretary determines that the arrangement between the organization and such individual is designed to avoid the application of this section. "(e) Reporting Requirements.-- "(1) ANNUAL CERTIFICATION.--Each organization described in section 501(c)(3) which is exempt from taxation under section 501(a) shall include with the annual return required under section 6033 a certification, signed under penalties of perjury by a principal officer of the organization, that no employee of the organization received total compensation in excess of $3,000,000 for the taxable year. "(2) DISCLOSURE OF COMPENSATION.--Each such organization shall report on the return required under section 6033 the total compensation (as defined in subsection (c)) of each employee whose total compensation for the taxable year exceeds $500,000. "(3) PENALTY FOR FAILURE TO REPORT.--Any organization that fails to include the certification required under paragraph (1) or the disclosure required under paragraph (2) shall be subject to a penalty of $100 per day for each day such failure continues (not to exceed $50,000 per return), unless it is shown that such failure is due to reasonable cause. "(f) Reinstatement.-- "(1) IN GENERAL.--An organization whose exempt status has been revoked under subsection (b) may apply for reinstatement of such status under the procedures established by the Secretary under section 6033(j)(2), but only if-- "(A) the organization demonstrates to the satisfaction of the Secretary that the total compensation of every employee has been reduced to not more than $3,000,000 per taxable year, "(B) the organization has repaid to the employee or recovered from the employee any compensation in excess of $3,000,000 paid during the taxable year that caused the revocation, "(C) the organization has adopted written policies and procedures reasonably calculated to prevent future violations of this section, and "(D) the organization has filed all required Federal income tax returns and paid all taxes due for the period during which its exempt status was revoked. "(2) EFFECTIVE DATE OF REINSTATEMENT.--Any reinstatement under paragraph (1) shall be effective only prospectively, beginning on the date the Secretary issues a determination letter approving the reinstatement. No retroactive reinstatement shall be permitted under this subsection. "(3) SECOND REVOCATION.--If an organization whose exempt status has been reinstated under paragraph (1) is subsequently subject to a second revocation under subsection (b), such organization shall be permanently ineligible for reinstatement of exempt status under this subsection. "(g) Adjustment for Inflation.-- "(1) IN GENERAL.--In the case of any taxable year beginning after December 31, 2027, the $3,000,000 amount in subsections (a) and (b) shall be increased by an amount equal to-- "(A) such dollar amount, multiplied by "(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 'calendar year 2026' for 'calendar year 2016' in subparagraph (A)(ii) thereof. "(2) ROUNDING.--If any amount as adjusted under paragraph (1) is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000. "(h) Regulations.--The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including-- "(1) rules to prevent the avoidance of this section through the use of intermediaries, pass-through entities, related organizations, or other arrangements, "(2) rules for the treatment of multi-year compensation arrangements, including deferred compensation that vests in a single taxable year, "(3) rules for the allocation of compensation between medical services and non-medical services in the case of medical professionals described in subsection (c)(3), "(4) rules coordinating the application of this section with sections 4958 and 4960, and "(5) transition rules for existing employment contracts described in subsection (i). "(i) Transition Rule for Existing Contracts.-- "(1) IN GENERAL.--In the case of any written binding contract which was in effect on the date of the enactment of this section and which provides for total compensation in excess of $3,000,000 for any taxable year, the revocation under subsection (b) shall not apply to compensation paid pursuant to such contract for taxable years beginning before the date which is 2 years after the date of the enactment of this section. "(2) MODIFICATION.--If any contract described in paragraph (1) is materially modified after the date of the enactment of this section, such contract shall no longer be treated as a contract described in paragraph (1) as of the date of such modification. "(3) NOTICE REQUIREMENT.--Any organization relying on the transition rule under this subsection shall disclose such reliance, and the terms of the applicable contract, on the annual return required under section 6033 for each taxable year during which the transition rule applies.". (b) Conforming Amendment to Section 501.--Section 501 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: "(s) Compensation Limitation.--An organization described in subsection (c)(3) shall not be treated as exempt from tax under subsection (a) for any taxable year if such organization is subject to revocation under section 4960A(b) for such taxable year.". (c) Clerical Amendment.--The table of sections for subchapter D of chapter 42 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item: "Sec. 4960A. Revocation of exemption for excessive employee compensation.". (d) Coordination With Section 4960.--Section 4960 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: "(e) Coordination With Section 4960A.--The tax imposed by this section shall continue to apply to any applicable tax-exempt organization without regard to whether such organization is also subject to section 4960A. For the avoidance of doubt, the excise tax under this section and the revocation of exempt status under section 4960A are independent consequences and the application of one shall not preclude the application of the other.". SEC. 4. ENHANCED REPORTING ON FORM 990. (a) In General.--Section 6033(b) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: "(16) the total compensation (as defined in section 4960A(c)) of each employee whose total compensation for the taxable year exceeds $500,000, and a certification described in section 4960A(e)(1).". (b) Regulations.--Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary's delegate) shall issue regulations or other guidance to revise Form 990 (Return of Organization Exempt From Income Tax) to include-- (1) a schedule requiring the reporting of total compensation (as defined in section 4960A(c) of the Internal Revenue Code of 1986) for each employee whose total compensation exceeds $500,000, (2) a certification under penalties of perjury that no employee received total compensation in excess of $3,000,000 (or the inflation-adjusted amount under section 4960A(g) of such Code) for the taxable year, and (3) such other information as the Secretary determines necessary to carry out the purposes of section 4960A of such Code. SEC. 5. TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION REVIEW. (a) Review Required.--Not later than 3 years after the effective date of this Act, and every 3 years thereafter, the Treasury Inspector General for Tax Administration shall conduct a review of the implementation and enforcement of section 4960A of the Internal Revenue Code of 1986. (b) Report.--Not later than 180 days after completing each review under subsection (a), the Treasury Inspector General for Tax Administration shall submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate, which shall include-- (1) the number of organizations that have had their exempt status revoked under section 4960A(b) of such Code, (2) the number of organizations that have applied for and received reinstatement under section 4960A(f) of such Code, (3) an assessment of compliance with the reporting requirements under section 4960A(e) of such Code, (4) an assessment of whether organizations are restructuring compensation arrangements to avoid the application of section 4960A of such Code, and (5) any recommendations for legislative or administrative changes to improve the effectiveness of such section. SEC. 6. AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated to the Internal Revenue Service such sums as may be necessary to carry out the provisions of this Act, including-- (1) the development and implementation of revised forms and reporting systems, (2) the training of personnel responsible for reviewing compensation disclosures and enforcing the provisions of section 4960A of the Internal Revenue Code of 1986, and (3) the publication and maintenance of the list required under section 4960A(b)(3)(B) of such Code. SEC. 7. EFFECTIVE DATE. (a) In General.--Except as provided in subsection (b), the amendments made by this Act shall apply to taxable years beginning after December 31, 2026. (b) Transition Rule.--The transition rule under section 4960A(i) of the Internal Revenue Code of 1986 (as added by section 3 of this Act) shall apply to compensation paid pursuant to written binding contracts in effect on the date of the enactment of this Act for taxable years beginning before January 1, 2029. (c) Regulations.--The Secretary of the Treasury (or the Secretary's delegate) shall prescribe initial regulations or other guidance under section 4960A of the Internal Revenue Code of 1986 not later than 1 year after the date of the enactment of this Act. ``` ---