NEWS FOR NONPROFITS

IRS scrutinizes compensation

In recent months, the IRS has turned its attention to compensation compliance by nonprofits. Its Compensation Compliance Initiative project reveals that significant reporting issues exist: Of 1,223 organizations initially contacted, over 30% amended their returns for compensation reporting. 15% of those contacted were later selected for examination.

Significant reporting deficiencies were found relative to excess benefit transactions, transactions with disqualified persons and issues related to loans made to officers. None of the 50 charities reporting total compensation over $250,000 attached schedules with details of compensation paid to officers or employees, even though this is required.

To avoid problems with executive compensation, make sure you perform due diligence in determining salaries. Always use comparability data. (There are a number of salary studies for nonprofits, including one published by GuideStar.) And compensation should be established in advance of the employment period. No individual involved in setting salaries should have a conflict of interest, and salary decisions should be documented.

You can avoid penalties by reporting all economic benefits available to your officers, directors and key employees on your Form 990, and properly reporting taxable benefits to your employees on their W-2s. •

Receiving contributions from politicians

With election campaigns in full swing, be mindful of the rules prohibiting nonprofits from engaging in political activity. This includes making contributions to political candidates.

But, is the reverse true — can charities accept contributions from politicians? The answer is yes. In fact, sometimes political action committees are terminated by giving the remaining funds to a charity. As long as the funds aren’t used for the private benefit of the donating politician, the contribution is treated as any other.

One word of caution, however — make sure that, by accepting the gift, the public’s perception of your organization isn’t tarnished. You need to ensure that the charity will control the use of the funds and everything is clearly above-board. •

Sun setting on IRA rollover provision

As part of the Pension Protection Act of 2006, the tax law was temporarily modified to allow individuals 701⁄2 or older to make an IRA distribution of up to $100,000 directly to a charity, avoiding including the amount in their adjusted gross income (with no charitable deduction allowed).

According to the Pennsylvania Association of Nonprofit Organizations, between August 2006 and December 2006, a relatively paltry $50 million in direct donations from IRAs was reported by charities — which could mean that many potential donors either are unaware of this provision or don’t understand the benefits. Unless Congress extends it, this special provision expires after December 2007. So you may want to make another push to try to capture some of these untapped funds. •