Intermediate Sanctions
Intermediate Sanctions regulations were adopted by the Internal Revenue Service in 1996 to ensure the total compensation received by an individual working within a nonprofit organization is reasonable in relation to the market and does not constitute an excess benefit transaction.
Section 4958 of the IRS Code addresses excessive benefit transactions for nonprofit executives in 501(c)(3) and 501(c)(4) organizations. The definition of an excessive benefit transaction is when the value of the benefit to the executive (consisting of base pay, incentive or bonus pay, standard and supplemental benefits, and perquisites) exceeds the value of the services provided to the organization.
Who Qualifies as a Disqualified Person?
The IRS requires reporting of compensation to officers and key executives known as "Disqualified Persons":
- "Disqualified Persons" are those executives who exercise substantial influence over the affairs of the organization, such as those supervising the management, administration, or operations of the organization.
- These individuals are automatically included as "Disqualified Persons".
- Family members of "Disqualified Persons" employed by the organization are also considered as "Disqualified Persons" and subject to regulation.
JER HR Group is a Specialist in Intermediate Sanctions Review
Collaborate with Board of Directors or Compensation Committee to understand the current Executive Compensation strategy and any compensation issues.
Determine special skills, abilities, and unique qualifications that may affect how an executive's compensation package should be positioned in relation to the competitive market.
Conduct an in-depth compensation analysis and provide an independent, expert opinion on whether or not an executive's total compensation is reasonable and complies with regulatory requirements.
Evaluate how components of compensation under review comply with IRS guidelines.
Provide guidance to the Board of Directors and/or Compensation Committee in establishing governance practices that will assist in minimizing liability under IRS guidelines.
Understanding the Process
Our Intermediate Sanctions Review process includes:
- Conducting interviews with the individual executive(s) being reviewed to better understand their roles and responsibilities within the organization, and special skills.
- Reviewing executive compensation disclosures in peer and direct competitor organizations.
- Conducting a total compensation analysis to determine how each executive's compensation compares to the market.
- Preparing a report outlining the methodology, findings, and recommendations, including our opinion on the reasonableness of current or proposed compensation.
Executive compensation
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Review executive compensation before it creates unnecessary compliance risk.
- Each engagement begins with a structured review of current executive compensation practices, governance processes, comparability data, and supporting documentation before recommendations are made.
- Our consultants support nonprofit boards and compensation committees with independent executive compensation analysis and documentation.
- We provide clear analysis, written documentation, and implementation guidance to support consistent compensation governance.
- No long-term contracts required. Engage for a single plan audit and redesign or build an ongoing advisory relationship for annual plan reviews and adjustments.
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