March 25, 1999 | Read Time: 3 minutes
Charity leaders, lawyers, and accountants have urged a panel of federal tax officials to make significant changes to proposed regulations that explain how a federal law designed to discourage overly generous compensation of non-profit officials will be enforced.
The law, which Congress enacted in 1996, allows the Internal Revenue Service to levy fines on charity officials who receive inappropriately high salaries or perquisites, as well as on trustees who authorize such arrangements. These fines are commonly referred to as “intermediate sanctions” because they give the I.R.S. an alternative to revoking a non-profit group’s tax exemption in cases of wrongdoing. Transactions that occurred after September 13, 1995, are generally covered by the law, even though the I.R.S. has not yet issued its final regulations.
At a hearing last week, non-profit representatives sought to win changes to proposed regulations issued by the revenue service in August (The Chronicle, August 13, 1998).
One of the most frequent complaints had to do with the I.R.S.’s definition of a “disqualified person,” a term used to describe someone who has a substantial influence over the affairs of a charity and who could be subject to fines under the intermediate-sanctions law. Many of the speakers argued that the service had taken too broad a view in its initial interpretation of the law.
Speaking in behalf of the American Council on Education, Dorothy K. Robinson, general counsel at Yale University, said large non-profit institutions each have hundreds of employees who potentially could be covered under the regulations. She said many such institutions are facing “an economic and administrative burden” as they spend large sums on compensation surveys and other measures to try to insure that all of these employees are in compliance with the law.
Ms. Robinson urged the I.R.S. to pare its definition of a disqualified person to cover only those people who have a substantial influence over an entire organization, rather than those who might oversee just one part.
Another issue raised at the hearing: how board-liability insurance premiums should be handled. Several speakers said the proposed regulations are confusing and seem to imply that board members must pay taxes on premiums paid for liability-insurance policies taken out in their behalf.
Pamela Kauffmann, a San Francisco lawyer who represented the American Association of Homes and Services for the Aging, said such a requirement “would drive a stake through the heart of volunteerism.” She urged the I.R.S. to clearly state in its final rules that such insurance premiums are not taxable income for volunteer board members.
I.R.S. officials said they would take into consideration all of the concerns raised when writing final regulations. They also encouraged non-profit representatives to continue to submit written comments. Comments should be mailed to CC:DOM:CORP:R (REG-246256-96), Room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington 20044.
The full text of the proposed regulations can be found on the I.R.S.’s World-Wide Web site at http://www.irs.ustreas.gov/prod/tax_regs/regslist.html.
