Executive Compensation & Section 4958

Nonprofits want to attract the best and brightest to run their operations and accomplish their missions, and they are increasingly competing with the for-profit sector for executive employees. The seemingly obvious answer is to offer competitive compensation packages to candidates to ensure nonprofits aren’t left behind in the recruiting battle. However, exempt organizations also have to comply with IRS regulations against excess benefit transactions and private inurement, so compensation packages must be viewed through that lens. They must also consider the potential public response if executives’ compensation is made public, no matter its reasonability.

 

Penalties for noncompliance with the law are steep. Under section 4958 of the Internal Revenue Code (the Intermediate Sanctions Act), any disqualified person receiving more than reasonable compensation is liable for an excise tax of 25% of the excess benefit amount, and if not corrected timely, an additional 200% of the excess benefit amount. Additionally, organization managers, including volunteer board members, are subject to a 10% excise tax on the benefit amount. The IRS offers a safe harbor for organizations that follow certain steps in approving compensation, so it is critical to follow these steps when determining compensation of disqualified persons.

 

Asiatico Law will assist you with designing compensation packages to attract and keep great talent, while maintaining compliance with federal law. Our executive compensation services include:

Corporate Transactions

• Identification of disqualified persons as defined by section 4958
• Review of comparable compensation data and preparation of executive compensation reports to determine reasonable compensation ranges
• Retrospective compensation analyses to identify past under-compensation
• Formation and training of independent compensation committee to review compensation of disqualified persons
• Compensation committee meetings and minutes
• Advice regarding non-cash compensation alternatives to attract and maintain talent
• Deferred compensation retirement planning

People

Brooke Asiatico
Katari Buck
Jay Jewett

Ves Som

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