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.