BENEFITS DIGEST

Proposed regulations in this morning's Federal Register would write into the regulations what Revenue Ruling 71-447 and the case law behind it established decades ago, that a racially discriminatory private school is not tax exempt. Two things are new. The rule reaches every private school from kindergarten through universities and trade schools, and it treats race-based criteria as discrimination for any purpose, sweeping in diversity-motivated scholarships, donor-restricted funds, and other school-supported programs. Religious admissions criteria survive if they are genuinely religious rather than proxies for ancestry or ethnicity. If finalized, the rule applies to taxable years beginning after May 31, 2027, and comments are due 60 days after publication.

Boutwell Fay's FAQ on the section 4960 excise tax for tax-exempt employers: who counts as a covered employee, how the $1 million threshold and parachute rules interact, and the traps for organizations with related entities.

Groom examines integral part trusts, a lesser known vehicle that tax-exempt organizations can use to fund employee benefits in a tax efficient, flexible way.

The IRS recently announced its intention to propose regulations relating to the 21 percent tax imposed with respect to any “excess” executive compensation paid by certain tax-exempt organizations.

Key Takeaways: The OBBBA significantly expanded Code §4960 for taxable years beginning after Dec. 31, 2025, broadening the scope of employees that tax-exempt organizations must evaluate for potential