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Effects of Excess Benefit Transactions on Tax-Exempt Status
by Katie A. Ahern
Hinckley, Allen & Snyder LLP - Providence Office
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November 25, 2009
Previously published on November 2009
The Internal Revenue Code imposes an excise tax of up to 225% on certain “disqualified persons,” usually directors and officers, who benefit from a so-called excess benefit transaction with a tax-exempt organization. A disqualified person receives an excess benefit where he or she receives a benefit from an organization that is greater in value than what the person gives in return, as may occur when an officer receives a salary that is greater than what is reasonable for the services performed or when a director purchases property from an organization at a price below fair market value. Other officers or directors may be subject to an excise tax of 10% of the excess benefit if they knowingly participate in an excess benefit transaction, such as by voting to approve the transaction or remaining silent with regard to the transaction.
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