Avoding Intermediate Compensation Sanctions: Non-Profit

Creating a Safe Harbor for a Non-Profit through Effective Compensation Review

Client Case Study

Situation

This faith-based non profit organization engaged us to conduct such a review annually, helping the organization to create a safe harbor if challenged by the IRS.

Having a third party conduct a comparative compensation review of those positions identified as disqualified is an important step in creating a rebuttable presumption of reasonableness, or safe harbor.

Complications

Intermediate Sanctions may be imposed on any disqualified person who receives an excess benefit from a covered non-profit organization and on each organization manager who approves an excess benefit.

Intermediate Sanctions allow the IRS to impose excise tax penalties on both the executive and board members involved with the excessive compensation.

 

Approach

  1. Categorize: Once the organization’s legal staff identified those positions and individuals categorized as disqualified, we utilized a combination of executive interviews and job documentation to gain a thorough understanding of the positions under review.
  2. Market Comparison: The total compensation (base salary, short term incentives, long term incentives and benefits) of these positions was then compared to that of jobs in similar types of organizations.  When conducting this comparative analysis, we focused on matching up the scope, responsibility job duties to positions in organizations similar in terms of size (number of employees, revenue, operating budget, assets, etc.) and type.

Results

  • We then documented the methodology and findings in a thorough report which the Board of Directors utilized to make targeted compensation decisions, ensuring compliance and creating a rebuttable presumption of reasonableness.

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