Surprise, charity insiders who use funds for personal use can draw a huge tax penalty.
The founder and chief executive officer of a 501(c)(3) tax-exempt organization used money in the group’s checking account to pay for a host of personal expenses (i.e. groceries, department store purchases, home repairs and her son’s tuition).
The executive was then hit with a 25% excise tax on the total amount of charitable funds she expended for personal use.
She claimed the expenditures were compensation because she didn’t draw a salary for her services to the charity.
But IRS and the Tax Court said the payments violated the excess benefit rules.
She also owes a 200% excise tax because she didn’t timely repay the charity the amount of the excess benefit, as required under the law.
Farr, TC Memo. 2018-2