IRS Warns that Fringe Benefits Trigger Intermediate Sanctions

At a recent conference on nonprofit governance sponsored by Georgetown Law Center, an IRS official stated that fringe benefits have become the most common trigger of intermediate sanctions under Section 4958 of the Code. 

As most of you know, or should know, Section 4958 of the Code, enacted in 1996, imposes excise taxes on both "disqualified persons" who receive an "excess benefit" from an exempt organization and any organization manager who knowingly participates in an excess benefit transaction. 

When an economic benefit is not treated as compensation by the organization, the benefit is presumed to constitute an excess benefit transaction in its entirety, unless the disqualified person can establish that it was properly excludable from income for income tax purposes, or involved a legitimate non-compensatory transaction with the organization.