List officers and benefits against the excess-benefit rules

Key facts

Human involvement

Yellow · Close supervision

How AI is used

From the file, list each officer, director, and trustee, each transaction that provides an economic benefit to one of those people, and the consideration the file states. Do not decide who can exercise substantial influence, and do not calculate an excise tax.

What the lawyer must review

You decide whether anyone is a disqualified person and whether any benefit is an excess benefit. 26 U.S.C. § 4958(c)(1) defines an excess benefit transaction as one in which an applicable tax-exempt organisation provides an economic benefit, directly or indirectly, to or for the use of a disqualified person, if the value of the benefit exceeds the consideration, including services, received for it. A benefit is not treated as consideration for services unless the organisation clearly indicated its intent to treat it that way. Section 4958(a) imposes a tax of 25 percent of the excess benefit on the disqualified person, and a tax of 10 percent on an organisation manager who knowingly participates, unless the participation is not willful and is due to reasonable cause. The manager tax for one transaction is capped at $20,000. Section 4958(b) imposes a further tax of 200 percent if the excess benefit is not corrected within the taxable period. An organisation manager is an officer, director, or trustee, or a person with similar powers. A disqualified person includes a person in a position to exercise substantial influence at any time during the five years ending on the transaction, a family member, and a 35-percent controlled entity. The family list is determined under section 4946(d), which was not opened. A 35-percent controlled entity is a corporation in which those persons own more than 35 percent of the voting power, a partnership in which they own more than 35 percent of the profits interest, or a trust or estate in which they own more than 35 percent of the beneficial interest. Constructive-ownership rules were not opened. An applicable organisation is one described in section 501(c)(3), (4), or (29) and exempt under section 501(a), or an organisation that was so described during the five years ending on the transaction. The term excludes a private foundation. Treasury Regulation § 1.501(c)(3)-1(f) says the substantive exemption requirements still apply, and that inurement of net earnings to a private shareholder or individual means the organisation is not operated exclusively for exempt purposes. In deciding whether to continue to recognise exemption where an excess benefit transaction also violates that prohibition, the Commissioner considers all relevant facts and circumstances, including the size and scope of exempt activities, the size and scope of the transactions, whether there have been multiple transactions, whether safeguards were implemented, and whether the transaction was corrected or correction was sought in good faith. The opened statute is an excise tax. It is not a test for appointing a responsible person.

Written for / version

United States versionUS