Intermediate Sanctions

Facts and Circumstances Test

To ensure that all persons who meet the criteria of being disqualified are identified regardless of title, the regulations establish a Facts and Circumstances Test.

The regulations include two lists of facts and circumstances:

1. Facts and circumstances that tend to show an individual has substantial influence
2. Facts and circumstances that tend to show a person does not have substantial influence

Facts and circumstances showing influence. Facts and circumstances that tend to show a person HAS substantial influence include:

• The person founded the organization.

• The person is a substantial contributor to the organization (as defined in section 507(d)(2)(A)), taking into account only contributions received during the current taxable year and the 4 preceding taxable years.

• The person's compensation is primarily based on revenues derived from an activity of the organization or a part thereof that the person controls. (This question of percentage payments will be considered later.)

• The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees.

• The person manages a discrete segment or activity of the organization that represents a substantial portion of the organization's activities, assets, income, or expenses as compared to the organization as a whole. For example, a person who manages a department that contributes significantly to the whole of the organization may be a disqualified person.

• The person owns a controlling interest (measured either by vote or value) in an organization (corporation, partnership, trust) that is a disqualified person.

• The person is a non-stock organization (such as a social club, homeowners association, etc.) controlled, directly or indirectly, by one or more disqualified persons.

Facts and circumstances showing little influence. Facts and circumstances that tend to show a person has NO substantial influence include:

• The organization is a religious organization, and the person has taken a "bona fide" vow of poverty as an employee or agent, or on behalf of the organization.

• The person is a contractor (e.g., an attorney, an accountant, or investment manager or advisor) whose sole relationship to the organization is providing professional advice (without having decision-making authority) with respect to transactions from which the contractor will not economically benefit, either directly or indirectly, apart from customary fees received for the professional advice rendered.

• If the direct supervisor of an individual is not a disqualified person, then the individual is not.

• The person doesn't participate in any management decisions affecting the organization as a whole OR in a discrete segment or activity of the organization that represents a substantial portion of the organization's activities, assets, income, or expenses as compared to the organization as a whole.

• Any preferential treatment a person receives that's based on the size of the person's donation is also offered to all other donors making a comparable contribution as part of a solicitation intended to attract a substantial number of contributions.