IRS Tax Exempt Compensation Initiative

Tuesday there was a hearing conducted by the Senate Finance Committee entitled "Charity Oversight and Reform: Keeping Bad Things from Happening to Good Charities" in which Mark Everson, Commissioner of the Internal Revenue Service, made these remarks: This summer, we…

Tuesday there was a hearing conducted by the Senate Finance Committee entitled “Charity Oversight and Reform: Keeping Bad Things from Happening to Good Charities” in which Mark Everson, Commissioner of the Internal Revenue Service, made these remarks:

This summer, we are launching a comprehensive enforcement project to explore the seemingly high compensation paid to individuals associated with some exempt organizations. This is an aggressive program that will include both traditional examinations and correspondence compliance checks. The purpose of the project is to enhance compliance by learning what practices organizations use to set compensation; learning how organizations report compensation to the IRS and the public; and creating positive tension for organizations as they decide on compensation arrangements. These organizations need to know that their decisions will be reviewed by regulatory authorities. This project also will have educational components.

We will be contacting hundreds of organizations. During the first stage, we will be looking at public charities of various sizes and private foundations. We will be asking these organizations for detailed information and supporting documents on their compensation practices and procedures, and specifically how they set and report compensation for specific executives. Organizations also will be asked for details concerning the independence of the governing body that approved the compensation and details of the duties and responsibilities of these managers with respect to the organization. Other stages will follow, and will include looking at various kinds of insider transactions, such as loans or sales to executives and officers. We also will be looking at organizations that failed to, or did not fully complete, compensation information on Form 990.

This information will help inform the IRS about current practices of self-governance, both best practices and compliance gaps, and will help us focus our examination program to address specific problem areas.

With Compensation Committees under fire generally these days, here are two helpful articles:

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