Executive Compensation Continues to be a Hot Button Compliance Issue for Charitable Organizations

December 19, 2014

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

Our 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 environment.

Education Practice

Our Education represent public and private colleges and universities. This representation includes statutory and regulatory compliance and investigation work relating to the Higher Education Act of 1965 and federal student aid programs. It also includes issues relating to NCAA investigations, faculty tenure, financing expansion, low-income housing, 501(c)(3) and other tax issues, student lending compliance and investigations, intellectual property, students and academics, housing, governance, endowment management, and construction.