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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.