The amount of the payment cannot be subject to any person's discretion. Certain qualified pension, profit-sharing, and employee benefit plans are considered fixed payments. The regulations set forth three distinct penalty excise taxes, two of which apply to disqualified persons and one that applies to managers of exempt organizations. The penalties applicable to disqualified persons establish escalating levels of liability. If an excess benefit transaction occurs, the recipient must pay a tax equal to 25 percent of the value of the excess benefit received.
Correction generally involves undoing the excess benefit transaction.
In most cases, the disqualified person must correct the transaction by paying the organization an amount equal to the excess benefit plus interest. This includes both active participation and passive participation, such as silence or inaction when the manager is under a duty to speak or act. If a member of the authorized body has a financial interest in the transaction being discussed, that member must recuse himself or herself from the process and not be present during debate or voting. The authorized body must gather appropriate data as to comparability in order to decide whether the terms of a compensation arrangement are reasonable. If the authorized body determines that reasonable compensation is higher or lower than the range of comparable data obtained, the authorized body must document the basis for its decision.