Intermediate Sanctions

Appropriate data as to comparability

An authorized body has appropriate data as to comparability if, given the knowledge and expertise of its members, it has information sufficient to determine that the compensation is reasonable.

The phrase "given the knowledge and expertise of its members" is an important factor. It's not enough to have good information or data. The board must be able to properly analyze and draw conclusions from that data.

Relevant information might include:

• compensation levels paid by similar organizations (both taxable and nontaxable) for functionally comparable positions
• the availability of similar services in the geographic area
• current compensation surveys compiled by independent firms
• actual written offers from similar institutions competing for the services of the disqualified person

Survey data should be for comparable jobs. Data should be sortable by various factors, including:

• size of organization
• nature of services provided
• level of experience of executives
• composition of the compensation package

The organization may obtain data through commercially available surveys or conduct its own survey.

For small organizations with annual gross receipts (including contributions) of less than $1 million (calculated based on the average of the 3 prior taxable years), it is sufficient that the governing body acquire and rely on compensation data paid by 3 comparable organizations, in the same or similar communities, for similar services

Documentation

Adequate documentation requires that the written or electronic records of the authorized body state:

• the terms of a transaction and the date it was approved
• the members of the authorized body present during the debate on the transaction and those who voted
• the comparability data relied upon and how the data was obtained
• any actions taken with respect to consideration of the transaction by members of the authorized body who had a conflict of interest
• the final determination of this body as to the competitiveness of the transaction, meaning the basis for the determination if the authorized body determines that reasonable compensation is actually higher or lower than the comparable compensation obtained

To be documented concurrently, records of the meeting must be prepared before the authorized body's next meeting or 60 days after the final action or actions of the authorized body, whichever is later. Records must be reviewed and approved by the authorized body as being reasonable, accurate, and complete within a reasonable time period after they are prepared.

Non-fixed payments

The rules explained thus far are for a fixed payment compensation package. Where there is a non-fixed payment (i.e., any variable compensation based on organization performance or results), the organization must meet the three criteria above (approval by an authorized body, comparable data, documentation) plus show the exact amount of the payment or the formula for determining that payment.

Absence of inference

A transaction between the tax-exempt organization and a disqualified person does not qualify for the Rebuttal Presumption of Reasonableness. It also does not create an inference that the transaction is an excess benefit transaction, nor does it exempt or relieve any person from compliance with any federal or state law that imposes any higher obligation, duty, responsibility, or other standard of conduct with respect to the operation or administration of the exempt organization.