mission Matters Nonprofits, Make Sure You Comply with IRS Executive Compensation Requirements August 13, 2024 Leadership succession is on the rise in the nonprofit world…if you’re in the midst of a leadership search, make sure you adhere to IRS compensation requirements. The IRS requirements are strict. Compensation disclosure is a vital component of accurate 990 filing. Are you preparing to fill a position at your organization? Make sure you prioritize IRS executive compensation requirements—you don’t want to run into IRS scrutiny! Form 990- background Filing the Form 990 is an important aspect of a tax-exempt organization's annual requirements. It serves two important functions: Informs the public -- The Form 990 informs the public about crucial aspects of your nonprofit. Potential donors and grantors can, and many routinely do, look at an organization's Form 990 before making decisions about charitable giving. The media and nonprofit-watchdog groups also utilize information in 990s.Informs the IRS -- The Form 990 provides the IRS with information about your nonprofit's annual mission activities, financial results and governance practices to show that your nonprofit still meets the qualifications for tax-exemption. What does part VII of form 990 report? Part VII, Section A of the Form 990 requires an organization to list officers, directors, key employees and other highly compensated employees who exceed certain thresholds. Why is accurate compensation reporting important for recruiting? This information is available to the public, so it’s crucial that it’s accurate as it helps the IRS and the public understand how the organization compensates its key personnel and ensures transparency in how nonprofit funds are used. Prospective leaders seek 990 information, specifically compensation information for several reasons: TransparencyCompensation benchmarkingOrganizational cultureBudget prioritiesGovernance and management What is rebuttable presumption? Established under IRS regulations, the rebuttable presumption of reasonableness is a safeguard that provides a framework for determining whether compensation is appropriate. The three requirements for establishing rebuttable presumption are: The compensation must be approved beforehand by a group of people within the tax-exempt organization who have no conflict of interest in the transaction.Before deciding, this group must gather and use relevant comparable data to as a basis for determining compensation (compensation survey).The group must properly document the basis for their decision timely (i.e. when they make it).
