June 10, 2004 | Read Time: 3 minutes
Elizabeth Schwinn
The Internal Revenue Service plans to contact hundreds of charities this summer to ask them to justify the salaries they pay executives and board members, according to Steven T. Miller, commissioner of the IRS’s tax-exempt and government entities division.
Among the nonprofit organizations selected will be the 100 to 200 organizations identified by the IRS as having paid an officer more than $1-million a year, Mr. Miller said at a conference in Washington last month.
“They’re the outliers,” said Mr. Miller. But he warned that charitable organizations whose executives make less could still be subject to an audit, depending on whether their pay is high relative to similar organizations.
The announcement comes amid a high-profile state lawsuit over a foundation executive’s compensation. A trial opened this month in a case in which the Texas attorney general’s office is suing Carl Yeckel, former chief executive officer of the Carl B. and Florence E. King Foundation, in Dallas, saying Mr. Yeckel’s pay and that of other executives was excessive.
In 2000, the King Foundation spent $2.6-million on salaries and expenses — more than twice as much as it gave out in grants to charities, according to news accounts. Mr. Yeckel’s lawyer, John Carsey, has said Mr. Yeckel’s compensation was consistent with those paid at for-profit businesses of a similar size.
Mr. Miller said this summer’s salary inquiries are part of a broader IRS review of nonprofit organizations. He said the Internal Revenue Commissioner had made enforcement of laws relating to tax-exempt groups a top priority and that the tax-exempt division would be hiring more agents to enforce the laws.
Among other problems, the revenue service has seen a sharp increase in fraudulent tax schemes involving charities, he said. Mr. Miller also noted that the IRS would seek more information from charities that operate overseas to ensure that they are not aiding terrorist organizations.
Mr. Miller’s announcement at the conference about the salary reviews signals the first systematic approach by the IRS to enforcing the eight-year-old “intermediate sanctions” law, a federal statute aimed at cracking down on charity officials who reap undue financial benefits from their nonprofit work.
The law is intended to make sure that charity leaders don’t receive exorbitant pay and perquisites and that trustees and top officials don’t approve any sweetheart financial arrangements for friends or relatives.
To justify an executive’s pay as reasonable, a charity must show that it has compared salaries with those paid at similar organizations of similar size. The comparisons may be made with businesses as well as charities. For example, nonprofit hospitals may compare themselves with for-profit hospitals.
Mr. Miller said the IRS will ask to see a charity’s study of comparable salaries, among other information.
The Chronicle’s most recent compensation survey of charity executives (October 2, 2003) found that 18 officials at 235 nonprofit groups made at least $1-million in 2002. Among them were Saleh Shenaq, chief of the plastic-surgery division at Baylor College of Medicine (who earned $2.4-million in 2002), and Leonard Slatkin, music director of the National Symphony Orchestra (who made $1.2-million in 2002).
