IRS Sharpens Focus On Tax-Exempt Organization Compensation

On March 1, 2007, the Internal Revenue Service (IRS) issued its long-awaited report on compensation paid and benefits provided by tax-exempt organizations to their executives and directors. The report reveals that the IRS sent compliance check letters to approximately 2,000 exempt organizations in two separate projects. Significantly, 15 percent of the compliance check recipients were selected for examination, and thus far, 25 examinations have resulted in proposed excise tax assessments under chapter 42 (i.e., under the self-dealing rules for private foundations, and under the excess benefit transaction rules for public charities) aggregating in excess of $21 million against 40 disqualified persons or organization managers. Executives and board leadership of tax-exempt organizations should pay close attention to a number of the report’s conclusions, and review their organizations’ compliance levels in light of the report’s conclusions that reporting and compliance levels are much