Nonprofit Organization-Intermediate Sanctions

“The consultants provided information and recommendations that proved invaluable  as our board faced critical decisions. We now rely on this study each year as a basis for decision-making.”

Opportunity

With the recent IRS regulations facing non profits, more and more tax exempt organizations are taking annual proactive measures to ensure that they are incompliance andthat positions are not paid at such a level to be determined in excess of “reasonable compensation”. 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. 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.

A faith-based non profit organization engaged Phillip Blount & Associates to conduct such a review annually, helping the organization to create a safe harbor if challenged by the IRS.

Solution:

Once the organization’s legal staff identified those positions and individuals categorized as disqualified, Phillip Blount & Associates utilized a combination of executive interviews and job documentation to gain a thorough understanding of the positions under review. 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, PB&A 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. Consultants utilized appropriate data from the firm’s library of approximately 300 sources to make these comparisons. PB&A 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.