January 18, 2011

Filing a 990? Meeting the bare minimum may leave you exposed.

Many nonprofit colleagues were probably away on well-earned vacations during the last week of December, when I blogged a year-end series of posts on best practices to go with the avalanche of last-minute reminders to contribute to everyone (see below, under: December). Here is a new item for consideration during 2011, as your documentation for 2010 gets processed.

What is the difference between a business expense and a job-related perk? How many salaries do executives truly collect?

As nonprofits start contemplating their audit and tax filings for last year (though many will push it back months by filing extensions), they can choose how to reflect executive compensation. [Note: I have no professional license in law or accounting -- a disadvantage? You decide…]


Regular limousine transportation (e.g., "Town Car" Executive Series) to the office may be prudent for busy or security-conscious executives, especially in larger non-profits. But this can qualify as a taxable benefit.

If it is not listed as a benefit, it can still be stipulated that the passenger reimburse the organization for the basic cost of commuting to the office -- for example, the cost of roundtrip taxi and/or train service -- which the average senior professional would be spending anyway. 

Comparably, political campaigns are required to reimburse the owners of private jets for at least the cost of a business- or first-class ticket, even though it doesn't come close to covering the actual cost. It doesn't eliminate the glare  of luxury, but it avoids the appearance of giving free rides (or sports tickets, or family vacations) to otherwise well-paid executives.


If an executive is paid from more than one source, his or her total income should be footnoted on the Form 990 that gets filed with the IRS and is open to public inspection. A number of nonprofit executives get paid through two or more separate tax-exempt entities, and the unfortunate tendency is for each individual 990 to state only its own share. 

Sometimes these entities are linked, or have an overlapping board of directors, and sometimes they are effectively independent of each other. Either way, the public should be able to know how much an executive is earning, and to which entities he or she is accountable. The organizations and their employees will also benefit in the long run, assuming they place a premium on integrity and good faith. Hiding the truth in plain sight is -- at best -- only slightly less sneaky than just handing the cash under the table.


501(c)3 entities and other nonprofits that have been granted tax-exempt status are bound by more than a basic set of laws and regulations. They owe the public some measure of transparency and accountability, and they owe their funders a reputation for being above board (or at least sparing the embarrassment of appearing deceptive and unscrupulous).

The bottom line: To which standard do you want to hold your nonprofit? What kind of reputation do you want, and through which means would you prefer that the public learn the full extent of your executive compensation package?

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