Over the last decade, the IRS has assumed a broader role in the governance of
tax-exempt organizations and embraced the view that transparency leads to tax
compliance. Nowhere is the IRS s approach more evident than in the area of
executive compensation. The IRS asks tax-exempt organizations to provide
detailed information annually on their Forms 990 regarding the compensation paid
to executives as well as the compensation policies and practices that
organizations follow. The information submitted can lead to compliance checks or
examinations by the IRS.
In setting executive compensation, each charitable organization should be
aware of the rules that apply to it. Special excise tax provisions apply to
public charities (as well as section 501(c)(4) social welfare organizations)
that provide excessive compensation to certain persons under the excess benefit
transaction rules of Internal Revenue Code section 4958. The private foundation
self-dealing rules of Internal Revenue Code section 4941 prohibit the payment of
unreasonable compensation to certain persons by a charitable organization
classified for federal tax purposes as a private foundation.
For more information on these tax rules and the procedures that charitable
organizations subject to these rules should follow when determining executive
compensation, please see our white paper titled
Compensating the Executive of a Charitable Organization.
Nonprofit and Tax-Exempt Organizations Group
Nonprofit-and-Tax-Exempt-Organizations provides advice and guidance
that enable charities and other nonprofits to operate more efficiently and
effectively in today s increasingly complicated, regulated and competitive
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