Foundations Account for Bulk of IRS Penalties in Compensation Review

Dan Prives has analyzed the Internal Revenue Service’s recent report on executive compensation at nonprofit organizations and found that private foundations accounted for the bulk of the penalties levied by the tax agency against organizations that it said paid their leaders overly high salaries or otherwise use tax-exempt assets for their personal benefit.

Mr. Prives, who has worked in finance jobs at several nonprofit groups, writes on his blog, Where Most Needed, that private foundations received four-fifths of the $21-million assessed by the IRS against nonprofit groups following its recent investigation. That is a significant share, he says, given that foundations accounted for only about one-fifth of the organizations that were examined by the IRS.

“The misbehavior on the part of the private foundations must have been really substantial,” writes Mr. Prives.

Digging deeper in the report, Mr. Prives found that most of the abuses at foundations was the result of loans to officials — often in the form of using foundation collateral to secure a personal loan.

“The abuse was sometimes subtler than compensation or direct loans, it involved insiders using foundation assets as loan collateral,” he writes. “Of course. Foundations usually have lots of bankable assets, and a lien on them would be easy to conceal.”

(Read The Chronicle’s article on the IRS report. To gain access to this article, you need a Chronicle subscription or a one-day pass. You may also read our special report on loans to nonprofit executives.)

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