The Internal Revenue Service announced a new enforcement initiative aimed at tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. In a move expected since spring, the IRS said it would "identify and halt abuses by tax-exempt organizations." Modern Healthcare in late May disclosed that the IRS expected to begin a broad review of tax-exempt organizations paying executives more than $1 million and of "excess benefit" transactions, such as how organizations and executives report car leases, spousal travel and tickets to sporting events. The agency also will investigate insider deals, such as loans and property sales or leases to executives.
The IRS said its Tax-Exempt Compensation Enforcement Project would involve "soft contact" audits of nearly 2,000 charities and foundations. In a soft-contact audit, the IRS usually requests information by mail; however, the project may include formal audits by inspectors. "We are concerned that some charities and private foundations are abusing their tax-exempt status by paying exorbitant compensation to their officers and others," IRS Commissioner Mark Everson said in a news release. "Particular organizations that we contact may or may not have problems in the compensation area, but specific aspects of their operations have raised questions that must be answered." The investigation is expected to continue through 2005. -- by Mark Taylor