More On Tax Planningfrom The Advisor's Professional Library
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
- ETF Taxation The use of ETFs may be attractive to certain investors. The tax advantages may make them even more attractive.
About 600 charities and foundations have had to file amended tax forms due to an IRS study that found flaws in the way the organizations reported payments to executives and other employees. Additionally, the IRS asked 40 individuals to pay a total of $21 million in excise taxes--the penalty imposed when the IRS determines a nonprofit executive has been paid excessively. About $4 million of the penalties involved individuals associated with public charities; more than $16 million related to individuals associated with private foundations.
The study--the Executive Compensation Compliance Initiative--began in 2004 and was conducted by the IRS's Exempt Organizations Office, prompted by heightened interest in Congress over the issue of nonprofit compensation. The study took place in three phases, and involved Form 990 and related returns for tax years beginning in 2002. In phase one, the IRS sent compliance check letters to a sample of organizations whose Forms 990 and 990-PF fit certain categories of missing information. The second step was determining whether the compensation of disqualified persons was reasonable according to IRS requirements. In its third phase, executive compensation compliance is being studied.
The inquiry found flaws in the tax forms of a third of the 1,800 charities and foundations, the names of which were not made public. Organizations directed to file amended tax returns either failed to report or incorrectly reported perquisites such as an executive's personal use of an organization's vehicles or travel payments for spouses. The Exempt Organizations Office recommended in March that Form 990 be revised to allow more accurate and complete compensation reporting, and include specific information to identify potential non-compliance areas such as loans to officers and directors.