Source: http://thinkandcode.info/Intermediate-Sanctions-Tax-p7504/
Timestamp: 2019-04-22 16:48:47+00:00

Document:
Tax Management Portfolio, Intermediate Sanctions, No. 476, discusses in detail the applicable sanctions that, under §4958, may be imposed on so-called “excess benefit transactions” involving §501(c)(3) public charities, §501(c)(4) organizations, and their insiders.
Tax Management Portfolio, Intermediate Sanctions, No. 476, discusses in detail the applicable sanctions that, under §4958, may be imposed on so-called “excess benefit transactions” involving §501(c)(3) public charities, §501(c)(4) organizations, and their insiders. Enacted in 1996 by the Taxpayer Bill of Rights 2, §4958 was added to the Internal Revenue Code to provide the IRS with a tool to penalize insiders of §501(c)(3) public charities and §501(c)(4) organizations who receive excess compensation or engage in unfair business transactions with the organizations, as well as managers who knowingly approve such arrangements. Section 4958 imposes an excise tax on a “disqualified person” — a person with substantial control over the organization — who receives excessive economic benefit from the organization, as well as on the organization manager(s) who approves the benefit knowing it to be excessive. The IRS may choose to invoke these penalties on the disqualified person as an alternative to revoking the organization's tax exemption, hence the term “intermediate sanctions” to describe this new penalty regime. Amendments made by the Pension Protection Act of 2006 extended the intermediate sanctions penalty system to certain transactions involving donor advised funds and supporting organizations and their substantial contributors, even when there is no “excess” benefit.
The Portfolio begins by reviewing the background leading to the adoption of §4958. It then identifies the exempt organizations to which §4958 applies and the key definitions of “disqualified person” and “organization manager.” The Portfolio provides a thorough consideration of how an “excess benefit transaction” may be effected via transactions involving compensation, revenue sharing, and property transfers. The Portfolio discusses the “initial contract” exception and the procedures for qualifying for a “rebuttable presumption of reasonableness” and describes how the excise taxes are imposed as well as the “correction” and abatement of §4958 sanctions. The Portfolio reviews the application of §4958 to donor advised funds and supporting organizations added in 2006 by the Pension Protection Act. Finally, the Portfolio addresses the interplay of §4958 with good governance practices and the reporting requirements of the revised Form 990.
Other portfolios that discuss intermediate sanctions include T.M., Tax Issues of Educational Organizations; 484 T.M, Tax Issues of Religious Organizations; and T.M., Tax-Exempt Organizations: Organizational and Operational Requirements.
This Portfolio may be cited as Roady, T.M., Intermediate Sanctions.
Celia Roady is a partner in the Tax Practice of Morgan, Lewis & Bockius, LLP, Washington, D.C. office. She focuses her practice on tax and governance issues affecting tax-exempt organizations, including charities, foundations, colleges and universities, museums, and other nonprofit organizations. Ms. Roady was appointed by the Internal Revenue Service to be a member of its Advisory Committee on Tax-Exempt and Government Entities for 2010–2012. She has also been named by Legal Times as one of Washington, D.C.’s “leading lawyers” in the tax field and is listed in Chambers USA: America's Leading Lawyers for Business (2005–2010) and The Best Lawyers in America (2007–2010).
Ms. Roady chairs the annual conference on “Representing and Managing Tax-Exempt Organizations,” sponsored by the Georgetown University Law Center. She also is a frequent speaker for the American Bar Association (ABA), American Law Institute, and other nonprofit conferences and symposia. In 2004–2005, Ms. Roady served on the Governance Work Group of the Panel on the Nonprofit Sector, which was convened by Independent Sector to provide comments to the Senate Finance Committee.
Ms. Roady is a fellow with the American College of Tax Counsel and has served as vice chair of communications for the ABA Section on Taxation. She is a former ABA Tax Section council member and former chair of the Exempt Organizations Committee, as well as a former chair of the Exempt Organizations Committee of the D.C. Bar Tax Section.
Following graduation from Duke University in 1973, Ms. Roady received her law degree in 1976 from Duke University and her LL.M. from Georgetown University in 1979.
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