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IRS Increases Enforcement Focus on Nonprofit Executive Compensation

The IRS is sending strong signals that it is going to be looking hard at compensation and benefit levels for nonprofit executives. To avoid problems with executive compensation, the IRS advises nonprofits to:

To establish a rebuttable presumption of reasonableness nonprofits should use an independent survey of comparability data. Information and software can be obtained from GuideStar; ERI Economic Research Institute; Salaries Review; Abbott, Langer Association Surveys; and other salary survey sources that specialize in the nonprofit sector.

In "Good Governance Practices for 501(c)(3) Organizations" the IRS states:

8. Compensation Practices
A successful charity pays no more than reasonable compensation for services rendered. Charities should generally not compensate persons for service on the board of directors except to reimburse direct expenses of such service. Director compensation should be allowed only when determined appropriate by a committee composed of persons who are not compensated by the charity and have no financial interest in the determination.

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