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Monday, July 30, 2007

Fees For Intermediate Sanctions for Non-Profits

Today we're continuing our series on non-profits & financial compensation by discussing what sort of fees your non-profit may expect to pay if the IRS imposes intermediate sanctions for excessive benefit.

The monetary penalties can be very harsh. Someone in a decision-making position over a non-profit who receives a compensation or benefit that exceeds the value of his or her contributions is subject to an excise tax of twenty-five percent (25%) of the excess amount. If they do not return the excess to the nonprofit by a set date, an additional tax of two hundred percent (200%) is imposed. Organization managers responsible for approving an excess benefit transaction can be held liable for an excise tax of ten percent (10%) of the excess benefit, with a ceiling of $10,000 per transaction.

Because fines can be so hefty, it's a good idea to make sure you have adequate representation. Please contact Gross & Romanick today.


Thursday, July 26, 2007

How Does The IRS Define Reasonable Compensation For Non-profits?

In our last post we talked about what actions the IRS can take if they suspect a non-profit is offering excessive compensation to its officers and directors. But before we delve too deeply, we thought we'd take a step back to talk about how they define reasonable compensation.

Reasonable compensation is defined as the value that would ordinarily be paid for similar services by similar companies under similar circumstances.

Compensation is presumed reasonable unless proven otherwise, provided the non-profit follows a set of standard procedures, which is known as establishing a "rebuttable presumption of reasonableness." To establish the rebuttable presumption of reasonableness, the transaction must be approved by an authorized body of the non-profit, the authorized body must use appropriate data to determine if the benefit is comparable to those provided by like companies under like circumstances prior to making a decision, and the authorized body must document the basis for its decision. (For non-profits with gross receipts of less than $1 million dollars, the compensation for similar positions paid by three similar organizations is considered appropriate data.) Once the non-profit establishes this rebuttable presumption, it becomes the IRS's responsibility to prove that a transaction involved excess compensation.

And remember, Gross & Romanick can guide you through this process so that there's never any doubt that you've successfully established rebuttable presumption of reasonableness.

Tuesday, July 24, 2007

How Non-profits Can Establish A Rebuttable Presumption of Reasonableness.

In our final post on non-profits and compensation, we're going to talk about what actions non-profits can take to establish a "rebuttable presumption of reasonableness."

1. Adopt a Conflict of Interest Policy.
2. An examination should be done with regard to what is "normal and reasonable" compensation within the particular industry the commission payment is coming from.
3. Write a written compensation agreement to be approved by the Board of Directors. The employees receiving the compensation package should not be present during the vote and should not vote on the compensation agreement. If a Conflict of Interest Policy is adopted, the Board of Directors should follow the policy and adopt a written resolution demonstrating that the procedures were followed.

Of course, it is always wise to seek legal counsel during this process, so be sure to contact Gross & Romanick before you begin to establish your rebuttable presumption of reasonableness.

Monday, July 23, 2007

Can Non-Profit Officers & Directors Receive Commissions?

Rewarding employees based on amount earned in the form of commissions is a long-standing tradition among for-profit companies. But what about non-profits? Can the officers and directors of a non-profit receive a commission based on the amount of money raised to fund a given project?

First off, it's important to realize that for-profit organizations do not face the same kind of inspection from the IRS as non-profits do when it comes to compensation. But there are several guidelines non-profits should follow to make sure that no penalties are imposed upon them or their directors and officers, which we'll discuss in the next few posts on this blog. (And if you'd like to discuss these regulations with us, please don't hesitate to contact Gross & Romanick.)

If the IRS suspects a non-profit is offering excessive compensation or benefits to an officer or director, it can impose intermediate sanctions. Excess benefit transactions occur when someone in a decision-making position over a non-profit receives a compensation or benefit that exceeds the value of his or her contributions. (Keep in mind that all financial transactions constitute a benefit.) Intermediate sanctions may be applied to someone who is in a position to exercise substantial influence over the affairs of the organization, such as officers and directors, and who receives benefits in excess of "reasonable compensation." Intermediate sanctions can also be applied to the organization managers who approve the transaction.

Another Successful Personal Injury Case

Happy with the $56,700.00 settlement in her very complicated personal injury case, Mary Worth (not her real name) recently sent Gross & Romanick this e-mail: "You ROCK. This will save me until I start work in January. Thanks again!"