NewsFlash for Non-Profit Employers: The Rebuttable Presumption of Reasonableness May Disappear or Change

In a recent presentation to the Georgetown Law Center Tax-Exemption Organization Conference, staff members to the Senate Finance and House Ways and Means Committees reported on some proposals for legislation that would have a legal impact on larger non-profit employers in the realm of senior executive compensation.

Large non-profit employers need to exercise care in determining compensation of senior executives in order to avoid intermediate sanctions. In essence, such employers currently need to use compensation consultants to establish a “rebuttable presumption of reasonableness” to be assured that the IRS will not find such compensation to constitute an excess benefit.

Currently on Capitol Hill, there is a legislation proposal to eliminate reliance on the rebuttable presumption and compensation consultants. The proposal would impose a 10% excise tax on the organization itself (not just disqualified persons and organizational manager) if the executive compensation is deemed excessive under an IRS “facts and circumstances” test. This would be a substantial change in intermediate sanction law and non-profit employer compensation processes.

On an additional note, floating around Capitol Hill is a proposal for a 25% excise tax on exempt organizations for executive compensation over $1,000,000 – which is rare, but out there. It would include defined compensation payments. Lookout senior health care executives, university presidents, and Big 10 coaches!

Takeaway: Keep an eye on these potential legislative developments affecting non-profit employers.  Minnesota Employer will keep you informed, of course!

About Neal Buethe

Neal Buethe is Head of Briggs and Morgan’s Employment, Benefits and Labor Section. Neal represents professionals, executives, for-profit employers, and non-profit organizations in employment and related matters. He is general counsel to several non-profit corporations, including religious organizations. For Neal’s full bio, click here.

Posted on May 5, 2014, in Non-Profit Employers. Bookmark the permalink. Leave a comment.

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