A recent poll underscores the continuing support the American public has for sustaining deductions for charitable contributions. The study, reported in the March 1, 2013 Non-Profit Times, found that 75 percent of those polled valued deductions for charitable contributions, with 61 percent indicating strong support. Furthermore, support for the continuing deductions was broad-based, spanning all geographic areas, and a wide range of socio-economic groups.
Has that ever been your response, when reading about indemnification for nonprofits? Simply explained, indemnification is the legal procedure by which a corporation reimburses directors, officers, and other agents for liabilities, expenses, and other losses incurred in the event of a lawsuit or other proceeding. This important protection should provide great comfort to the organization’s leaders.
Last week, the IRS released its final 37-page compensation report (“Report”), based on its five-year compliance review of 400 randomly selected colleges and universities. The Report reflects the IRS’ increasing willingness to scrutinize public charities, particularly their comparability data used to set executive compensation. Consequently, even though colleges and hospitals generally represent the largest and most complex of tax-exempt organizations under IRC Section 501(c)(3), the legal compliance concerns raised are worth a careful review by all tax-exempt public charities with employees.
IRC Section 4958 requires public charities to pay no more than reasonable compensation to their officers, directors, trustees, and key employees. In the event an organization provides unreasonable compensation, significant excise taxes can be imposed on the recipients of the compensation and potentially on the board members and others who approved it.
What is reasonable or unreasonable compensation? Section 4958 provides a “safe harbor” margin for organizations that follow a three-step process: