Correcting an Excess Benefit Transaction To correct an excess benefit transaction, the persons involved must remit the excess benefit, to the extent possible, and take any additional measures needed to place the tax-exempt organization in a financial position equal to or better than if the disqualified person had employed the highest fiduciary standards. If an excess benefit transaction is related to a contract that has been partially performed, the contract need not be terminated but may require modifications to prevent future violations of the excess benefit rules. The temporary rules also clarify that relevant comparability data includes such things as independent compensation surveys and competitive bids from unrelated third parties. Finally, with respect to the documentation requirements, records, which must contain the terms and date of the transaction, the board members present, the comparability data relied upon, and any actions related to members with conflicts of interest, must be prepared by the later of the next board meeting or 60 days after final approval of the particular arrangement. This rebuttable presumption can apply to payments that are not fixed only after discretion is exercised, the exact amount of the payment is determined and the three requirements for the presumption set forth above are satisfied.
Special rules apply to non-fixed payments subject to a cap.
The temporary rules reserve a separate section for regulations governing revenue-sharing transactions. In the meantime, such transactions are evaluated under the general rules defining excess benefit transactions, which apply regardless of whether a disqualified person's compensation is computed by reference to revenues of the organization. Organization Managers Organization managers who knowingly participate in excess benefit transactions are subject to a tax of 10 percent of the excess benefit unless the participation was not willful and was due to reasonable cause. Fixed payments under initial contracts are excepted if the contract is a binding written contract between a tax exempt entity and a person who was not disqualified immediately prior to entering the contract, if certain requirements are met. Most fringe benefits excluded from income under IRC Section 132 are disregarded for purposes of the excise tax rules.