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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations
multiple applicable years ending with or within the employers taxable year.
4 Examples. The following examples illustrate the rules of this paragraph c.
For purposes of these examples, assume that the rate of excise tax under section 4960 is 21 percent, that any entity that is referred to as ATEO is an ATEO, that any entity referred to as CORP is not an ATEO and is not a publicly held corporation within the meaning of section 162m2 or a covered health insurance provider within the meaning of section 162m6C, that no related organization is a section 4948b related organization, all taxpayers use the calendar year as their taxable year unless otherwise stated, and that no parachute payments are made in any of the years at issue.
i Example 1 Remuneration from multiple employersA Facts. ATEO 1
and CORP 1 are related organizations.
Employee A is a covered employee of ATEO 1 and an employee of CORP 1. In the 2022 applicable year, ATEO 1 pays Employee A $1.2 million of remuneration, and CORP 1 pays A
$800,000 of remuneration.
Remuneration paid by each employer is for services performed by Employee A
solely as an employee of that employer.
B Conclusion. For the 2022 taxable year, ATEO 1 is treated as paying Employee A $2 million of remuneration, $1 million of which is excess remuneration. The total excise tax is $210,000 21 percent $1 million.
ATEO 1 paid 35 of Employee As total remuneration $1.2 million/$2 million;
thus, ATEO 1 is liable for 35 of the excise tax, which is $126,000. CORP 1
paid 25 of Employee As total remuneration $800,000/$2 million;
thus, CORP 1 is liable for 25 of the excise tax, which is $84,000.
ii Example 2 Application when taxpayers have different taxable yearsA Facts. Assume the same facts as in paragraph c4i of this section Example 1, except that CORP
2 uses a taxable year beginning July 1
and ending June 30.
B Conclusion. The conclusion is the same as the conclusion in paragraph c4i of this section Example 1, except that ATEO 1 is liable for the tax for its taxable year starting January 1, 2022, and ending December 31, 2022, and CORP 1 is liable for the tax for its taxable year beginning July 1, 2022, and ending June 30, 2023 the taxable year with or within which ATEO 1s 2022
applicable year ends.
iii Example 3 Multiple liabilities for same applicable year due to multiple ATEOsA Facts. The following facts are all with respect to the 2023
applicable year: ATEO 5 owns 60

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percent of the stock of CORP 2. Sixty percent of ATEO 4s directors are representatives of ATEO 3. In addition, 60 percent of ATEO 5s directors are representatives of ATEO 4, but none are representatives of ATEO 3. Employee B
is a covered employee of ATEO 3, ATEO
4, and ATEO 5 and is an employee of CORP 2. ATEO 3, ATEO 4, ATEO 5, and CORP 2 each pay Employee B $1.2
million of remuneration in the applicable year. ATEO 4s related organizations are ATEO 3 and ATEO 5.
ATEO 3s only related organization is ATEO 4. ATEO 5s related organizations are ATEO 4 and CORP 2.
B Calculation ATEO 3. Under ATEO 3s calculation as an ATEO for the 2023 applicable year, ATEO 3 is treated as paying Employee B a total of $2.4 million in remuneration $1.2
million from ATEO 3 + $1.2 million from ATEO 4. The total excise tax is $294,000 21 percent $1.4 million.
ATEO 3 and ATEO 4 each paid 12 of Employee Bs total remuneration $1.2
million/$2.4 million; thus, under ATEO
3s calculation, ATEO 3 and ATEO 4
each would be liable for 12 of the excise tax, which is $147,000.
C Calculation ATEO 4. Under ATEO 4s calculation as an ATEO for the 2023 applicable year, ATEO 4 is treated as paying Employee B a total of $3.6 million in remuneration for the 2022 applicable year $1.2 million from ATEO 3 + $1.2 million from ATEO 4 +
$1.2 million from ATEO 5. The total excise tax is $546,000 21 percent $2.6
million. ATEO 3, ATEO 4, and ATEO
5 each paid 13 of the total remuneration to Employee B $1.2 million/$3.6
million; thus, under ATEO 4s calculation, ATEO 3, ATEO 4, and ATEO 5 each would be liable for 13 of the excise tax, which is $182,000.
D Calculation ATEO 5. Under ATEO 5s calculation as an ATEO for the 2023 applicable year, ATEO 5 is treated as paying Employee B a total of $3.6 million in remuneration $1.2
million from ATEO 4 + $1.2 million from ATEO 5 + $1.2 million from CORP
2. The total excise tax is $546,000 21
percent $2.6 million. ATEO 4, ATEO
5, and CORP 2 each paid 13 of the total remuneration to Employee B $1.2
million/$3.6 million; thus, under ATEO
5s calculation, ATEO 4, ATEO 5, and CORP 2 each would be liable for 13 of the excise tax, which is $182,000.
E Conclusion Liability of ATEO 3.
For the 2023 applicable year, ATEO 3 is liable for $182,000 of excise tax as a related organization under ATEO 4s calculation, which is greater than the $147,000 of excise tax under ATEO 3s own calculation. Thus, ATEO 3s excise
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tax liability with respect to Employee B
is $182,000 for its 2023 taxable year.
F Conclusion Liability of ATEO 4.
For the 2023 applicable year, ATEO 4 is liable as a related organization for $147,000 of excise tax according to ATEO 3s calculation, for $182,000
according to ATEO 4s own calculation, and for $182,000 according to ATEO 5s calculation. Thus, ATEO 4s excise tax liability with respect to Employee B is $182,000 for its 2023 taxable year.
G Conclusion Liability of ATEO 5.
For the 2023 applicable year, ATEO 5 is liable as a related organization for $182,000 of excise tax under ATEO 4s calculation, and is liable for $182,000 of excise tax under ATEO 5s own calculation. Thus, ATEO 5s excise tax liability with respect to Employee B is $182,000 for its 2023 taxable year.
H Conclusion Liability of CORP 2.
For the 2023 applicable year, CORP 2 is liable as a related organization for $182,000 of excise tax according to ATEO 5s calculation only. Thus, CORP
2s excise tax liability with respect to Employee B is $182,000 for its 2023
taxable year.
d Calculation of liability for excess parachute payments1 In general.
Except as provided in paragraph d3
of this section, only excess parachute payments made by or on behalf of an ATEO are subject to tax under this section. However, parachute payments made by related organizations that are not made by or on behalf of an ATEO
are taken into account for purposes of determining the total amount of excess parachute payments.
2 Computation of excess parachute paymentsi Calculation. The amount of an excess parachute payment is the excess of the amount of any parachute payment made by an ATEO, a predecessor of the ATEO, or a related organization, or on behalf of any such person, over the portion of the covered employees base amount that is allocated to the payment. The portion of the base amount allocated to any parachute payment is the amount that bears the same ratio to the base amount as the present value of the parachute payment bears to the aggregate present value of all parachute payments made or to be made to or for the benefit of the same covered employee. Thus, the portion of the base amount allocated to any parachute payment is determined by multiplying the base amount by a fraction, the numerator of which is the present value of the parachute payment and the denominator of which is the aggregate present value of all parachute payments.
ii Examples. The following examples illustrate the rules of this
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