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!