IRS to Require More Disclosure of Officials’ Salaries

The Internal Revenue Service will probably alter its definition of which workers should be counted as key employees on the newly redesigned Form 990 informational tax form, a change that would require many groups to list the salaries of more people than they do now.

Ronald J. Schultz, a senior technical adviser for the agency’s tax-exempt organizations division, said in an interview that the IRS is looking at expanding the definition of “key employees” for whom charities must report compensation on their Form 990. The form and its instructions are getting a significant makeover for the 2008 tax year.

Currently, only workers whose influence extends “organizationwide” are considered “key employees” on Part V of the Form 990, said Mr. Schultz. (Schedule A of the Form 990 asks charities to list the compensation of their five highest-paid workers other than officers, directors, and key employees.)

Instructions now say that a key employee is anyone who has responsibilities similar to those of officers and directors and include chief management officials of an organization, such as an executive director.

The instructions also say “a chief financial officer and the officer in charge of the administration or program operations are both key employees if they have the authority to control the organization’s activities, its finances, or both.”

“We’ve found that many organizations take the position they have no key employees,” said Mr. Schultz, “so in the redesign we wanted to find clarity.” Under the new definition, anyone who has “influence over key activities” would qualify.
“Many people in the sector think it’s an expansion” of the qualifications for a key employee, Mr. Schultz said, “and it might be.”

He also said some charity officials are calling the move the “department head” rule, since heads of departments at hospitals and universities would probably qualify. To make sure the new requirements are not onerous, he said the IRS will probably require groups to list the salaries only of key employees who make at least $100,000.