A Warning to Nonprofits from Economic Research Institute: IRS Has New Sanctions for Excessive Compensation.REDMOND, Wash. -- According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the ERI Eri (ē`rī), in the Bible, son of Gad. Economic Research Institute, the Internal Revenue Service wants to know which executives at tax-exempt organizations (e.g., hospitals, charities, foundations, etc) are receiving excessive compensation. Once the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. determines who those executives are and how much of their compensation is excessive, the IRS will impose costly intermediate sanctions Intermediate sanctions is a term used in regulations enacted by the United States Internal Revenue Service that is applied to non-profit organizations who engage in transactions that inure to the benefit of a disqualified person within the organization. , warns ERI. These intermediate sanctions can require that top executives at those organizations repay their employers (along with interest and excise penalties of up to 200%) for excessive compensation. In addition, Board members who approved of that excessive compensation and organization managers who knowingly participated in allowing the excessive compensation can be personally fined $10,000 per incident. Tax-exempt organizations have been put on notice, and a number of states are vigorously pursuing nonprofit organizations that pay their executives excessive compensation in advance of the IRS. California has passed a new Nonprofit Integrity Act of 2004 and New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of State has a Not-For-Profit Corporation A not-for-profit corporation is a corporation created by statute, government or judicial authority that is not intended to provide a profit to the owners or members. A corporation that is organized to provide profits to its owners or members is a for-profit corporation. Law, both of which require that tax-exempt organizations take the reviewing and approving of executive compensation seriously. If they do not, they will be subject to non-defensible challenges. There are more than 3-million nonprofit organizations in the U.S., some paying their top executives many millions of dollars annually. The number of nonprofits is growing by 10% per year, and they account for 11.2% of all employees. Nonprofit boards average over a dozen members. There are millions of executives and managers in such organizations, and their salaries range from the suspiciously low to the outrageously high. Such highs and lows raise red flags for the IRS. Since the terrorist attacks of 9/11 and evidence that some charities have been funding terrorist groups, the IRS has been moving rapidly and proactively to end abuses at all tax-exempt entities, according to ERI. The IRS Tax Exempt Entities Division is the fastest growing unit in the IRS, and it is working hand-in-glove with Homeland Security Noun 1. Homeland Security - the federal department that administers all matters relating to homeland security Department of Homeland Security executive department - a federal department in the executive branch of the government of the United States . In an effort to determine which tax-exempt organizations are paying their CEOs, Presidents, and Executive Directors salaries that are excessive, the Internal Revenue Service recently subscribed to ERI Economic Research Institute's new software package, the Executive Compensation Assessor(R). It permits tax-exempt organizations to determine what precisely is "reasonable compensation." The IRS, in fact, has licensed thirty Tax-Exempt Executive Compensation Assessor and Survey software packages from ERI for 2005. This ERI software and survey allows the IRS and tax-exempt organizations to analyze reasonable compensation by using compensation data derived from publicly available Form 990s and 990PFs. Dr. David J David J. Haskins (b. April 24, 1957, in Northampton, England) is a British alternative rock musician. He was the bassist for the seminal gothic rock band Bauhaus. Life and work . Thomsen, ASA Asa (ā`sə), in the Bible, king of Judah, son and successor of Abijah. He was a good king, zealous in his extirpation of idols. When Baasha of Israel took Ramah (a few miles N of Jerusalem), Asa bought the help of Benhadad of Damascus and and ERI's Director stated: "With ERI's Executive Compensation Assessor, the IRS will now be able to establish the average compensation for executives in similarly situated similarly situated adj. with the same problems and circumstances, referring to the people represented by a plaintiff in a "class action," brought for the benefit of the party filing the suit as well as all those "similarly situated. organizations and in doing so will be able to define "reasonable compensation." Tax-exempt organizations that are overpaying top executives or are paying them suspiciously low salaries because money is being funneled elsewhere should come under IRS scrutiny. "There is a limited period of time for those tax-exempt organizations to remedy such situations going forward: Boards need to educate themselves on what to do, assess and document compensation reasonableness using independent sources, and then adjust compensation programs to defensible de·fen·si·ble adj. Capable of being defended, protected, or justified: defensible arguments. de·fen levels and practices. With ERI's Tax Exempt Executive Compensation Assessor & Survey, they can take defined steps that will shift the burden of proof of what is reasonable compensation to the IRS. They can also use ERI's For-Profit Executive Compensation Assessor with compensation information from privately held, taxable, and publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. to round out the assessment of reasonableness. Those organizations that take no steps to adjust unreasonable compensation could be perceived by the IRS as arrogantly flouting the law. Without taking the necessary steps to protect themselves from individual joint and several liability, board members and organization managers will also make themselves targets of the IRS even though others received the compensation. Some states are suggesting that nonprofit service providers, legal counsels and CPAs, also face review for their involvement." Both the ERI Tax Exempt and For-Profit Executive Compensation Assessor & Survey software products analyze executive pay and are used in Federal Tax Courts and by numerous organizations and Boards of Directors. For more information visit www.salaryexpert.com or www.erieri.com |
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