Instructions For Form 990 And Form 990-Ez - 2004 Page 12
ADVERTISEMENT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46transactions from which the independent
Section 4958 applies only to
person’s gross income for income tax
contractor will not economically benefit.
post-September 1995 transactions. Section
purposes, the applicable tax-exempt
•
The person has taken a vow of poverty.
4958 applies to excess benefit transactions
organization is not required to indicate its intent
•
Any preferential treatment the person
occurring on or after September 14, 1995.
to provide an economic benefit as
receives based on the size of the person’s
Section 4958 does not apply to any transaction
compensation for services. (For example:
donation is also offered to others making
occurring pursuant to a written contract that
employer provided health benefits, and
comparable widely solicited donations.
was binding on September 13, 1995, and at all
contributions to qualified plans under section
•
The direct supervisor of the person is not a
times thereafter before the transaction occurs.
401(a).)
disqualified person.
What is reasonable compensation?
What benefits are disregarded? The
•
The person does not participate in any
Reasonable compensation is the valuation
following economic benefits are disregarded for
management decisions affecting the
standard that is used to determine if there is an
purposes of section 4958:
organization as a whole or a discrete segment
•
excess benefit in the exchange of a disqualified
Nontaxable fringe benefits: An economic
of the organization that represents a
person’s services for compensation.
benefit that is excluded from income under
substantial portion of the activities, assets,
section 132.
Reasonable compensation is the value that
income, or expenses of the organization, as
•
Benefits to volunteer: An economic benefit
would ordinarily be paid for like services by like
compared to the organization as a whole.
provided to a volunteer for the organization if
enterprises under like circumstances. This is
the benefit is provided to the general public in
What about persons who staff affiliated
the section 162 standard that will apply in
exchange for a membership fee or contribution
organizations? In the case of multiple
determining the reasonableness of
of $75 or less per year.
affiliated organizations, the determination of
compensation. The fact that a bonus or
•
Benefits to members or donors: An
whether a person has substantial influence is
revenue-sharing arrangement is subject to a
economic benefit provided to a member of an
made separately for each applicable
cap is a relevant factor in determining the
organization due to the payment of a
tax-exempt organization. A person may be a
reasonableness of compensation.
membership fee, or to a donor as a result of a
disqualified person with respect to transactions
For determining the reasonableness of
deductible contribution, if a significant number
with more than one organization.
compensation, all items of compensation
of nondisqualified persons make similar
provided by an applicable tax-exempt
Excess Benefit Transaction
payments or contributions and are offered a
organization in exchange for the performance
similar economic benefit.
An excess benefit transaction is a transaction
of services are taken into account in
•
Benefits to a charitable beneficiary: An
in which an economic benefit is provided by an
determining the value of compensation (except
economic benefit provided to a person solely
applicable tax-exempt organization, directly or
for certain economic benefits that are
as a member of a charitable class that the
indirectly, to or for the use of any disqualified
disregarded, as discussed in What benefits are
applicable tax-exempt organization intends to
person, and the value of the economic benefit
disregarded? below). Items of compensation
benefit as part of the accomplishment of its
provided by the organization exceeds the value
include:
exempt purpose.
•
of the consideration (including the performance
All forms of cash and noncash
•
Benefits to a governmental unit: A transfer
of services) received for providing such benefit.
compensation, including salary, fees, bonuses,
of an economic benefit to or for the use of a
severance payments, and deferred and
To determine whether an excess benefit
governmental unit, as defined in section
noncash compensation;
transaction has occurred, all consideration and
170(c)(1), if exclusively for public purposes.
•
The payment of liability insurance premiums
benefits exchanged between a disqualified
Is there an exception for initial contracts?
for, or the payment or reimbursement by the
person and the applicable tax-exempt
Section 4958 does not apply to any ‘‘fixed
organization of taxes or certain expenses
organization, and all entities it controls, are
payment’’ made to a person pursuant to an
under section 4958, unless excludable from
taken into account. For purposes of
initial contract. This is a very important
income as a de minimis fringe benefit under
determining the value of economic benefits, the
exception, since it would potentially apply, for
section 132(a)(4). (A similar rule applies in the
value of property, including the right to use
example, to all initial contracts with new,
private foundation area.) Inclusion in
property, is the fair market value. Fair market
previously unrelated officers and contractors.
compensation for purposes of determining
value is the price at which property, or the right
reasonableness under section 4958 does not
to use property, would change hands between
An ‘‘initial contract’’ is a binding written
control inclusion in income for income tax
a willing buyer and a willing seller, neither
contract between an applicable tax-exempt
purposes.
being under any compulsion to buy, sell or
organization and a person who was not a
•
All other compensatory benefits, whether or
transfer property or the right to use property,
disqualified person immediately prior to
not included in gross income for income tax
and both having reasonable knowledge of
entering into the contract.
purposes.
relevant facts.
•
A ‘‘fixed payment’’ is an amount of cash or
Taxable and nontaxable fringe benefits,
An excess benefit can occur in an
except fringe benefits described in section 132.
other property specified in the contract, or
•
exchange of compensation and other
Foregone interest on loans.
determined by a fixed formula that is specified
compensatory benefits in return for the
in the contract, which is to be paid or
Written intent required to treat benefits
services of a disqualified person, or in an
transferred in exchange for the provision of
as compensation. An economic benefit is not
exchange of property between a disqualified
specified services or property.
treated as consideration for the performance of
person and the exempt organization.
services unless the organization providing the
A ‘‘fixed formula’’ may, in general,
benefit clearly indicates its intent to treat the
When does an excess benefit transaction
incorporate an amount that depends upon
benefit as compensation when the benefit is
usually occur? An excess benefit transaction
future specified events or contingencies, as
paid.
occurs on the date the disqualified person
long as no one has discretion when calculating
receives the economic benefit from the
the amount of a payment or deciding whether
An applicable tax-exempt organization (or
organization for federal income tax purposes.
to make a payment (such as a bonus).
entity that it controls) is treated as clearly
However, when a single contractual
indicating its intent to provide an economic
Treatment as new contract. A binding
arrangement provides for a series of
benefit as compensation for services only if the
written contract providing that it may be
compensation payments or other payments to
organization provides written substantiation
terminated or cancelled by the applicable
a disqualified person during the disqualified
that is contemporaneous with the transfer of
tax-exempt organization without the other
person’s tax year, any excess benefit
the economic benefits under consideration.
party’s consent (except as a result of
transaction with respect to these payments
Ways to provide contemporaneous written
substantial non-performance) and without
occurs on the last day of the taxpayer’s tax
substantiation of its intent to provide an
substantial penalty, is treated as a new
year.
economic benefit as compensation include:
contract, as of the earliest date that any
•
The organization produces a signed written
In the case of the transfer of property
termination or cancellation would be effective.
employment contract;
subject to a substantial risk of forfeiture, or in
Also, a contract in which there is a ‘‘material
•
The organization reports the benefit as
the case of rights to future compensation or
change,’’ which includes an extension or
compensation on an original Form W-2, Form
property, the transaction occurs on the date the
renewal of the contract (except for an
1099 or Form 990, or on an amended form
property, or the rights to future compensation
extension or renewal resulting from the
filed prior to the start of an IRS examination; or
or property, is not subject to a substantial risk
exercise of an option by the disqualified
•
The disqualified person reports the benefit
of forfeiture. Where the disqualified person
person), or a more than incidental change to
as income on the person’s original Form 1040
elects to include an amount in gross income in
the amount payable under the contract, is
or on an amended form filed prior to the start of
the tax year of transfer under section 83(b), the
treated as a new contract as of the effective
an IRS examination.
excess benefit transaction occurs on the date
date of the material change. Treatment as a
the disqualified person receives the economic
Exception. To the extent the economic
new contract may cause the contract to fall
benefit for federal income tax purposes.
benefit is excluded from the disqualified
outside the initial contract exception, and it
-12-
General Instructions for Form 990 and Form 990-EZ
ADVERTISEMENT
0 votes
Related Articles
Related forms
Instructions For Form 1040nr-ez - U.s. Income Tax Return For Certain Nonresident Aliens With No Dependents - 2005
Financial
Instructions For Form 1040nr-ez - U.s. Income Tax Return For Certain Nonresident Aliens With No Dependents - 2008
Financial
Instructions For Form 1040nr-ez - U.s. Income Tax Return For Certain Nonresident Aliens With No Dependents - 2011
Financial
Instructions For Form 1040nr-ez - U.s. Income Tax Return For Certain Nonresident Aliens With No Dependents - Internal Revenue Service - 2007
Financial
Instructions For Form 1040nr-ez - U.s. Income Tax Return For Certain Nonresident Aliens With No Dependents - 2016
Financial
Instructions For Form 1040nr-ez - U.s. Income Tax Return For Certain Nonresident Aliens With No Dependents - 2013
Financial
Related Categories
Parent category: Financial