January 12, 2006 | Read Time: 1 minute
Many charities have violated federal tax law by providing improper benefits or excessive pay to top officials, according to a review of nonprofit organizations by the Internal Revenue Service.
In the review of more than 1,800 charities, the IRS uncovered substantial loans to charity executives and board members as well as many undocumented loans, according to David L. Fish, a manager in the revenue service’s Exempt Organizations office. Mr. Fish spoke at a Washington conference on charity tax law last month.
Federal tax law prohibits top officials of a nonprofit group from using their relationship with the organization to obtain money or perquisites that benefit them privately but do not help the charity accomplish its mission.
A loan could violate that prohibition if its terms are unusually generous — particularly if it carries a below-market interest rate. However, federal law allows charities to offer loans and other perquisites when recruiting executives (The Chronicle, February 5, 2004).
The IRS also found cases where it believed the compensation of charity executives was too high, Mr. Fish said. He said that some organizations disguised the total salary their executives received by spreading the compensation of officers and others among several affiliated organizations, so that only a small amount was reported on any one return. And some charities failed to report deferred compensation and perquisites such as personal use of an organization’s car and cellphone, he said.
The findings are among the initial results of the revenue service’s two-year study of executive compensation at charities. The IRS plans to publish a final report on its findings in September and could eventually levy fines on officials of charities that have violated the law.
