Safe harbor for Organization Managers

Non-Profit Executive Compensation

What is Required for a Study of Comparables by a Member of a Compensation Committee of a Board of Directors is not Sufficient to Protect an Organization Manager

Intermediate Sanctions reads:

An organization manager's participation in a transaction is ordinarily not considered knowing within the meaning of section 4958(a)(2), even though the transaction is subsequently held to be an excess benefit transaction, to the extent that, after full disclosure of the factual situation to an appropriate professional, the organization manager relies on a reasoned written opinion of that professional with respect to elements of the transaction within the professional's expertise. …… For purposes of this paragraph, appropriate professionals on whose written opinion an organization manager may rely, are limited to-- (A) Legal counsel, including in-house counsel; (B) Certified public accountants or accounting firms with expertise regarding the relevant tax law matters; and (C) Independent valuation experts who - (1) Hold themselves out to the public as appraisers or compensation consultants ; (2) Perform the relevant valuations on a regular basis ; (3) Are qualified to make valuations of the type of property or services involved ; and (4) Include in the written opinion a certification that the requirements of 36 paragraphs (d)(4)(iii)(C)(1) through (3) of this section are met.

26 C.F.R. 53.4958-1(a)(4)(iii)(C)(1) – (C)(4) [emphasis added]

Intermediate Sanctions presents potentially significant personal liability for nonprofit Board Members and its Organization Managers:

participation includes silence or inaction on the part of an organization manager where the manager is under a duty to speak or act, as well as any affirmative action by such manager. (See IRC 4958.pdf here or IRC 4958.html here).

This is in Addition to the Provision of Comparables & Competitive Information for Compensation Committee of a Board of Directors' Use

ERI's Nonprofit Salary Survey Assessor software provides the ability for larger tax-exempt organizations to review comparables and competitive levels of compensation by geographic area, industry (NTEE) segment, and organization size. SalaryExpert's Preliminary Non-Profit Executive Report provides up to 12 comparable organizations for purposes of establishing the rebuttable presumption of compensation reasonableness for smaller organizations. These reports assist board members in satisfying their statutory duty of care. Although these reports do not, in and of themselves, create a compensation plan, they allow for the instant extraction of peer compensation data from the largest combined taxable and tax-exempt organization database in the world.

ERI Economic Research Institute does not represent or warrant the services of SalaryExpert or any third party. Your use of this website as it relates to ERI research products is governed by ERI's Terms of Use; see ERI does not provide fee-for-service consulting of any type. ERI and BTA do not provide legal or accounting advice.

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