The Internal Revenue Service is looking to address two issues involving tax-exempt organizations:
- Payment of fringe benefits and treatment of unrelated business income. The agency is concerned that charities aren’t including the value of fringe benefits when figuring executives’ total compensation. If the insiders’ salaries are excessive, there will be stiff penalties levied.
- It’s also looking at groups that offset business income with expenses that are not directly related to that income, as well as charities that have continually reported losses from their unrelated business activities.
I advise all Not for Profit clients to run their business like a business and keep a close eye on cash flow as well as the bottom line.