September 29, 2005 | Read Time: 1 minute
The Internal Revenue Service has released proposed regulations designed to explain when it should revoke the tax exemption of a charity whose officials were already in trouble for receiving excessive benefits from the organization.
In 1996, the federal government enacted a law that gave the IRS the authority to fine charity officials for receiving salaries and other benefits that are excessive, rather than revoking the tax-exempt status of the organizations themselves. The statute is known as the intermediate sanctions law.
The proposed rules explain which factors the IRS could consider in deciding when it should not only fine charity officials but also pull a group’s charity status. Among the factors: “Whether the organization has been involved in repeated excess benefit transactions” and “whether the organization has implemented safeguards that are reasonably calculated to prevent future violations.”
The proposed rules, which include hypothetical examples to illustrate their application, were published in the September 9 edition of the Federal Register, and are available at http://www.gpoaccess.gov/fr/. The IRS invited nonprofit groups to submit comments on the proposal.
