Exposing Salaries: A Not-for-Profit Dilemma
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December 2001 (SmartPros) Tax Code Section 6033 mandates that the salaries of a not-for-profit organization's officers, directors or trustees be reported annually on Form 990. Not surprisingly, the people who run not-for-profit organizations dislike this reporting requirement with a passion -- especially now with the increased accessibility the public has to this information.
Until recently, Form 990, even though they are public documents, were not easily obtained. As a result, much of the information contained in them remained private. But then, as a result of the Taxpayer Bill of Rights Number Two, Congress mandated easier disclosure for the information returns of not-for-profit organizations. In fact, Guidestar.com makes this information just one click away.
According to expert commentator Michael Tucker, this is a controversial issue because "the organizations, the people we're dealing with don't want their salaries in there. If you're making $150,000, and the people who are working for you are making $35,000, you don't want them to know you're making that much money. It's as simple as that."
As a result of this controversy, the Internal Revenue Service requested comments on the nature and extent of information about compensation arrangements tax-exempt organizations should report on their annual information returns. In addition, the IRS specifically seeks comments on whether these organizations should continue to report payments for contracted management services as if the organization had directly paid the individuals providing the services.
Tucker explained this IRS position: "Now they're saying. 'We're going to allow these organizations to take that name out if that person is really provided through a management services company. Then you can just put the management services company in there. It is a back treading so to speak. It's giving in to the organizations because they were very critical of that.'"
So does this encourage not-for-profits to hire management services firms to essentially "lease" their execs?
"It may be, said Tucker, "but I tend to think there are larger issues here. For example, would you use a management services company only because you wanted to conceal the payments you made to hire executives? I don't think so. I've never met a client like that. Maybe you would use that service for many reasons, and this might be one of those reasons. But I don't think there's going to be a stampede to management service companies just because this announcement came out. Personally as a citizen, I don't think it's a good idea. I think there really is an oversight function and that's the reason why a 990 or a 990-PF is publicly disclosed. Why the IRS is giving into it is, essentially, because of the private gripes of certain private foundations, but we live in the reality of a kinder, gentler IRS."
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The entire interview with Michael Tucker is available through the The CPA Report. Access the multimedia presentation and transcript free of charge, or earn NASBA-approved CPE credit for the one-hour segment. The program also includes: