Not-for-Profit Compensation Analysis

Unlike most private companies, foundations and charities must be ready to prove to the IRS that they are not overpaying their employees. If your organization uses a documented process to determine whether compensation is reasonable, it will be more difficult for the IRS or anyone else to challenge it. As a bonus for public charities and certain other types of exempt organizations, such documentation puts the burden of proving the compensation is unreasonable on the IRS.

However, if you do not document that process, the IRS is in the driver’s seat—and you might not like where they take you. They can levy stiff penalties against an officer or director who received the compensation and the managers, including board members, who approved it. Such incidents must be reported publicly on Forms 990 or 990-PF, potentially tarnishing the trust of donors, media, and the public.

Doing a compensation study yourself that will stand up to IRS scrutiny can be challenging, time-consuming, and may appear biased, particularly if you have a small board. With Clark Nuber, you can keep the focus on your core activities and gain peace of mind from disruption, penalties, or loss of reputation if the IRS questions your organization’s compensation levels.

By using Clark Nuber you will:

• Have access to data from thousands of comparable organizations
• Reduce the perception of bias by having the documentation prepared by independent persons
• Reduce uncertainty and risk with a proven approach
• Gain an advocate with the experience to respond effectively to IRS inquiries