Reasonable Non-Profit Compensation
We conduct analysis of compensation paid by non-profits organizations to officers and key employees, in order to assist our clients in determining “reasonable” compensation.
Federal law requires that compensation paid to employees of 501(c)(3) organizations should be “reasonable”. This means that the compensation should not exceed amounts that would ordinarily be paid for similar services by similar organizations. This might include other non-profit organizations, but it might also include for-profit organizations.
IRS regulations state that current compensation surveys compiled by independent firms may be considered when determining reasonable compensation. We can review various compensation surveys and government records and databases and provide your organization with written documentation of the compensation totals which may be deemed reasonable under the law.
Why is a compensation opinion useful?
If an employee’s compensation is approved by an independent compensation committee and the amount of the compensation is based in part upon a compensation review, the employer will enjoy a “rebuttable presumption” that the compensation is reasonable. This means that the compensation figure will be treated as “reasonable” under the law unless the IRS is able to prove otherwise. This is very beneficial to the employer. After all, it is far better for the IRS to have to prove that compensation is unreasonable than for you to have to prove that it is.
Contact the Law Office of Dan Beirute to schedule a compensation review or request a legal consultation.