Compensation Rules for Exempt and Nonprofit Organizations: Designing and Maintaining Executive Comp Plans

Recording of a 110-minute CPE webinar with Q&A

Conducted on Wednesday, October 28, 2015

Recorded event now available

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Program Materials

This webinar will provide nonprofit entity advisers with a deep and comprehensive examination of the complex rules governing compensation issues for exempt organizations. The panel will discuss the design, documentation, maintenance and corporate governance requirements of a compensation scheme that complies with the prohibitions against private inurement found in IRC Section 4958 and the restrictions on the deferral of compensation in IRC Section 457(f).

Description

Compensation packages for executives of tax-exempt nonprofit organizations are subject to private inurement questions, and are also subject to tax regulations governing benefits, including nonqualified deferred compensation, that do not apply to executives at for-profit companies. Tax advisers to nonprofit exempt organizations need to be fully adept at handling the compensation issues specific to exempt organizations, and must continually monitor to ensure the organizations are compliant with IRS rules to avoid potentially disastrous tax and operational consequences.

IRC Section 501(c)(3) allows a corporation, trust or association to qualify for tax exempt status if no part of its net earnings inures to the benefit of any private individual. “Private inurement” can occur when a person of influence (e.g., an executive) receives a benefit or something of value from the organization and does not give fair value in return. This includes compensation packages for executives and directors. This is an area of heightened IRS scrutiny. The Service’s Exempt Organizations (EO) Group has been focusing on executive compensation arrangements at exempt organizations.

IRC Section 457(f) generally restricts the deferral of compensation by or for executives of exempt organizations to only unvested amounts. The requirements that deferred compensation must satisfy to be “nonvested” under Section 457(f) are not clearly defined, however, and pose business challenges. Regulations under IRC Section 457(f) have been under development at the IRS for several years and the publication of proposed regulations is believed to be imminent.

Listen as our experienced panel details and drills down into the rules governing compensation packages for executives at tax exempt organizations, including design, documentation, maintenance and corporate governance requirements of a compensation scheme in compliance with IRC Section 4958 prohibitions of private inurement.

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Outline

  1. Private inurement risks and penalties
  2. IRC Section 4958 reasonable compensation standards
  3. Best practices for designing, maintaining, and documenting exec compensation schemes
  4. IRC Section 457(f) rules restricting deferrals of compensation

Benefits

The panel will discuss these and other issues:

  • What are the Section 4958 reasonable compensation standards?
  • What are the risks to the exempt organization, and the individual directors and executives, of violating the private inurement rules?
  • What are the documentation requirements of compensation arrangements?
  • What are the rules of Section 457(f) restricting deferrals of compensation to unvested amounts, current business practices with respect to Section 457(f), and the risks of noncompliance?

Faculty

Bailey, Luke
Luke D. Bailey
Partner
Clark Hill Strasburger

Mr. Bailey specializes in employee benefits law and executive compensation. He has extensive experience in the tax...  |  Read More

Katherine E. David
Katherine E. David
Partner
Strasburger & Price

Ms. David counsels clients on tax matters, including federal income taxation and state margin and sales...  |  Read More

Bob Cartwright
Bob Cartwright
President / CEO
Intelligent Compensation

Mr. Cartwright has more than 30 years of diversified experience in compensation and human resource management which...  |  Read More

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