Ask Moss Adams Excess Benefits

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Information about Ask Moss Adams Excess Benefits

Published on March 20, 2008

Author: Savin


Slide1:  Presentation Title Presenter name Date, 2003 for Not-For-Profits Welcome To Audio Conference 1-866-548-4705 Participant Code: 673044 After signing in, please mute your phone by pressing *6. Slide2:  Today’s Topic Excess Benefits & Executive Compensation Slide3:  Instructions Please keep speakerphones on mute Technical questions during the event, email Questions for presenter Submit your question using the “chat” function Questions for presenter during Q&A will be selected by host. Slide4:  About Today’s Presenters Paul Keller – Partner (Eugene) Suzanne Taylor – Partner (Portland) Rich Croghan – Partner (San Francisco) Leslie Richardson – Director (Seattle) Slide5:  What Are Excess Benefits? Slide6:  Excess Benefits Defined Any transaction in which the tax-exempt organization provides directly or indirectly an economic benefit to a disqualified person in excess of any consideration received from the disqualified person. Slide7:  What Does That Mean? When the organization gives a disqualified person a benefit or compensation (or both) that is of greater value than the services that person provides to the organization – it’s an excess benefit. Slide8:  Who Is Disqualified? Anyone in a position to exercise substantial influence over the affairs of the organization Slide9:  Disqualified Persons Slide10:  Also Disqualified An outside entity in which a disqualified person has at least 35 percent ownership Slide11:  Types of Excess Benefits Slide12:  Monetary Slide13:  Personal Use Slide14:  Miscellaneous These types of economic benefits are frequently misreported Slide15:  Miscellaneous Slide16:  What Are The Consequences? Slide17:  Tax Penalties A 25 percent initial tax penalty on the excess benefit is imposed on the disqualified person. Slide18:  Tax Penalties If not corrected (paid back) within the taxable period, there is an additional tax penalty of: 200 PERCENT Slide19:  Tax Penalties Organization managers could face a 10 percent tax penalty (up to $10,000) for knowingly approving an excess benefits transaction. Slide20:  Penalties are paid by the individual, not the organization Tax Penalties But, the organization must disclose the excess benefit transaction to the IRS. Slide21:  The disqualified person must repay the excess benefit to the organization with interest, PLUS The initial penalty tax still applies, unless the organization can prove “reasonable cause.” Correcting the Transaction Slide22:  The IRS What Have They Been Up To? Slide23:  Increased the size of its Exempt Organization (EO) Division IRS Activity EO Division budget increase 23 percent Slide24:  IRS Activity Increased audits of tax-exempt organizations Slide25:  IRS Activity Initiated a federal/state compensation compliance group conference Slide26:  Initiated the Tax-Exempt Compensation Enforcement Project IRS Activity Slide27:  Enforcement Project What They Did Contacted approximately 2,000 tax-exempt organizations with inquiries about compensation paid. Conducted audits of the selected organizations Slide28:  Enforcement Project What They Found Executives hiring family members at generous salary for little work. Organizations covering executives’ personal expenses. Large organizations paying significant salaries unsupported by comparable value. Questionable loan transactions. Slide29:  Real World Examples Slide30:  Real World Examples Portland, OR Large local NFP organization E.D. highly paid (over $800k) Massive media coverage Public outrage Audited by A.G. E.D. ultimately took 25% pay cut Slide31:  Real World Examples Washington D.C. Private university Anonymous letter to Board alerted to possible abuse of travel and personal expenses Investigation and independent audit conducted Audit committee found $500k of inappropriate spending President ultimately resigned Slide32:  Real World Examples Others? Slide33:  How To Protect Your Organization Slide34:  Compensation decisions must be approved by your board Safe Harbor Slide35:  The board must obtain comparable data from a third-party source Safe Harbor Slide36:  Document, Document, Document Safe Harbor These actions create ‘rebuttable presumption of reasonableness’ Slide37:  One Other Option Good luck with that ! ! ! If you choose not to use Safe Harbor, you can use “facts and circumstances” Slide38:  Panel on Nonprofit Sector on Executive Compensation Slide39:  Board Compensation No board member compensation No loans to board members Slide40:  Board Compensation Require additional disclosure related to board compensation Require disclosure of process used to determine “reasonableness” Slide41:  Board Compensation “Congress should increase penalties imposed for excessive compensation” Slide42:  Executive Compensation Base pay, bonuses, benefits should be clearly disclosed Full board should approve changes in advance Slide43:  Executive Compensation Must be able to demonstrate “reasonableness” to IRS If no ‘rebuttable presumption’ exists, penalties increase Slide44:  Travel Expenses Establish and enforce travel policies Disclose travel policies in IRS Form 990 Slide45:  Travel Expenses No reimbursement for non-employees (family, friends, etc.) Reimbursement instructions include non-permitted costs Slide46:  Governing Board Compensation not set by other board members No members related to compensated employee IRS Form 990 require disclosure of independence Minimum three members At least 1/3 of members independent No compensation or material benefit Slide47:  Q&A Slide48:  Next Session “10 Things NFP Board Members Should Know” By Lynn Kingston, CPA May 18, 2006 9:30 am

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