Health Care Bulletin                                            March 19, 2007

The errors date back to 2002, and were uncovered by the Executive Compensation Initiative, (the "Project") implemented in 2004. The Project gathered data from responses to more than 1,200 compliance letters sent to nonprofits, and reviewed the examinations of 782 additional organizations. They concluded that nonprofits need better education on properly completing the form, and that it may need to be revised.

Times have changed. Now, the IRS has the ability to gather data, determine noncompliance, and pursue enforcement.

The IRS is concerned about all of the reporting errors uncovered by the Project, but significant issues were revealed in 25 examinations, including:

• Excessive salary and incentive compensation
• Payments for vacation homes, personal legal fees, or personal automobiles that were not reported as compensation
• Payments for personal meals and gifts to others on behalf of disqualified persons that were not reported as compensation
• Payments to an officer's for-profit corporation in excess of the value of services provided by the corporation.

These examinations resulted in "proposed or assessed excise taxes aggregating in excess of $21 million against 40 disqualified persons or organization managers," according to the report.

How tax-exempt organizations report executive compensation is going to continue to be a matter of public scrutiny. To guide our nonprofit health care clients, we can assess their compensation and community benefit practices, as well as offer education to officers and boards.

Contact us for more information.