IRS Official Offers Regulatory Advice

By GRANT WILLIAMS

The chief regulator of tax-exempt organizations at the Internal Revenue Service, Steven T. Miller, has written a plain-language explanation of some of the federal rules for charities that are trying to make sure that they are not paying excess compensation to their top officials.

Earlier this year, the Treasury Department issued detailed regulations on how it will enforce a 1996 law designed to crack down on people who receive improper financial benefits through their involvement with nonprofit groups (The Chronicle, January 25).

The law allows the revenue service to levy fines on charity officials who receive inappropriately high salaries or perquisites, as well as on trustees who authorize the arrangements.

The statute’s penalties are often referred to as “intermediate sanctions” because until the law was passed, the revenue service had only one way to punish abuses: revoke a charity’s tax exemption. Because that penalized an entire organization and the people who benefited from its services, the agency rarely took that step.

Some charities have been concerned about how they should follow a “safe harbor” provision provided in the regulations that tax-exempt groups are allowed to use to stay out of trouble with the government. By taking certain steps, nonprofit organizations can establish a so-called rebuttable presumption with the Internal Revenue Service in which the government would presume the compensation set by the charity to be reasonable and not an “excess benefit.”

In his explanation, Mr. Miller, who is director of Exempt Organizations at the I.R.S., describes how charities could take four steps to establish that presumption, pointing out that the smallest charities may not ever need or want to do so.

Among many things, Mr. Miller explains how organizations can determine which officials the regulations cover and what charities can do to collect compensation figures for similar nonprofit organizations in order to determine officials’ salaries.

Perhaps most useful to many charities is a 15-part “rebuttable presumption checklist” that Mr. Miller provides to help in “insuring that your organization gets the benefit of this presumption.”

Included on his checklist: a breakdown of the many components of each compensation package that is both proposed and approved by charity governing bodies.

Mr. Miller’s explanation, while not official I.R.S. policy, is part of an effort by the Internal Revenue Service to be more responsive to charities that are trying to abide by often-complicated tax laws.

To read Mr. Miller’s suggestions, go to The Chronicle’s Web site, http://philanthropy.com/free/update/2001/05/2001051401.htm.