New IRS Rules for Charities

The Internal Revenue Service recently proposed new regulations for tax-exempt organizations which provide for excise taxes and loss of exempt status for “excess benefit transactions.”

The IRS is watching tax-exempt organizations and threatening to revoke their tax-exempt status, if they are over-compensating key employees. Charities are asked to implement safeguards to detect and prevent this and any other excess benefit transactions. To maintain their tax-exempt status, charities must not allow their cash or property to “inure” to the benefit of insiders or other individuals.

Further, insiders of charitable organizations who improperly benefit may be subject to excise taxes. The excise taxes are imposed on the individual and not the charity.

Since charities do not have shareholders, the IRS polices charities to ensure that funds are used only to further the exempt purpose and that employees are not paid unreasonable compensation.

For additional information on how to determine reasonable compensation, contact Stephen D. Kirkland, CPA or visit www.ReasonableComp.com.