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June 23, 2004
IRS to Scrutinize Compensation Practices at Tax-Exempt Firms

The IRS is launching an enforcement initiative to examine the compensation practices at some tax-exempt and charitable organizations.

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IRS Commissioner Mark Everson told a Senate hearing yesterday that the campaign was prompted by concerns over what he described as the "seemingly high compensation" paid to leaders of tax-exempt and charitable organizations, the Associated Press reports.

Everson said the IRS initiative will ensure these organizations are complying with laws and regulations.

"During the first stage, we will be looking at public charities of various sizes and private foundations," Everson said. "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."

Everson noted that an organization can lose its tax-exempt status "if an organization pays or distributes assets to insiders in excess of the fair market value of the services rendered."

Excise taxes can also be imposed on the individual who received excessive compensation and the managers who approved it.

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