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The Law of Intermediate Sanctions: A Guide for Nonprofits

ISBN: 978-0-471-22402-0
362 pages
January 2003
The Law of Intermediate Sanctions: A Guide for Nonprofits (0471224022) cover image
An essential resource on the new law facing nonprofits

This comprehensive, easy-to-use guide summarizes, analyzes, and explains the federal tax law on intermediate sanctions. Among other topics, the author addresses:

  • The statute, legislative history, regulations, and court opinions of intermediate sanctions
  • The influence of law concerning private inurement, private benefit, and private foundation self-dealing
  • Real-world examples of intermediate sanctions in practice
  • How nonprofits may seek to avoid excess benefit transactions or adequately document that excess benefit does not occur

Nonprofit executives, attorneys, accountants, and members of boards of directors will find The Law of Intermediate Sanctions to be an unparalleled resource on the new measures targeting nonprofit abuse.

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Preface.

Prologue.

Chapter 1: Basics and History of Intermediate Sanctions Law.

§ 1.1 Intermediate Sanctions Law Basics.

(a) Meaning of Intermediate Sanctions.

(b) Nature of the Sanctions.

(c) Fundamental Terminology.

§ 1.2 History of Intermediate Sanctions.

(a) General History.

(b) Accompanying Regulations.

(c) Effective Dates.

§ 1.3 Applicable Tax-Exempt Organizations.

§ 1.4 Interrelationship with Other Law.

§ 1.5 Commentary on Intermediate Sanctions.

Chapter 2: Private Inurement and Private Benefit Doctrines.

§ 2.1 Essence of Private Inurement.

§ 2.2 Concept of Net Earnings.

§ 2.3 Requisite Insider.

§ 2.4 Types of Private Inurement.

(a) Compensation for Services.

(b) Rental Arrangements.

(c) Loans.

(d) Sales of Assets.

(e) Equity Distributions.

(f ) Assumptions of Liability.

(g) Employee Benefits.

(h) Tax Avoidance Schemes.

(i) Services Rendered.

(j ) Provision of Goods or Refreshments.

(k) Retained Interests.

(l) Embezzlements.

§ 2.5 Social Welfare Organizations.

§ 2.6 Per Se Private Inurement.

§ 2.7 Incidental Private Inurement.

§ 2.8 Private Benefit Doctrine.

(a) General Rules.

(b) Import of Joint Venture Cases.

(c) Perspective.

(d) Private Benefit: In the Background as Well as the Foreground.

Chapter 3: Disqualified Persons.

§ 3.1 Concept of Disqualified Person.

§ 3.2 Directors and Trustees.

§ 3.3 Officers.

§ 3.4 Key Employees.

§ 3.5 Facts and Circumstances Test.

(a) Facts and Circumstances Showing Influence.

(b) Facts and Circumstances Showing Little Influence.

§ 3.6 Family Members.

§ 3.7 Controlled Entities.

§ 3.8 Vendors of Products or Services.

§ 3.9 Nondisqualified Persons.

§ 3.10 Donor-Advised Funds.

§ 3.11 Other Rules.

Chapter 4: Excess Benefit Transactions.

§ 4.1 Concept of Excess Benefit Transaction.

(a) Excess Benefit Transaction Defined.

(b) Consideration.

(c) Indirect Excess Benefit Transactions.

(d) Element of Knowledge.

§ 4.2 Controlled Entities.

§ 4.3 Intermediaries.

§ 4.4 Initial Contract Exception.

(a) History of Exception.

(b) Fixed Payments.

(c) Initial Contracts.

(d) New Contracts.

§ 4.5 Valuation Standards.

(a) Valuation of Property.

(b) Valuation of Services.

§ 4.6 Compensation Arrangements.

(a) Meaning of Compensation.

(b) Ascertaining the Reasonableness of Compensation.

(c) Timing of Reasonableness of Compensation.

(d) Intent to Treat Benefit as Compensation.

§ 4.7 Other Transactions.

(a) Lending Transactions.

(b) Rental Transactions.

(c) Sales transactions.

§ 4.8 For the Use of Transactions.

§ 4.9 Revenue-Sharing Transactions.

(a) Definition of Revenue-Sharing Transaction.

(b) Overview of Legislative History.

(c) Profit-Sharing Plans.

(d) Percentage-Based Compensation.

(e) Proposed Regulations.

(f ) Revenue-Sharing in the Fundraising Context.

§ 4.10 Disregarded Economic Benefits.

Chapter 5: Rebuttable Presumption of Reasonableness.

§ 5.1 Concept of Rebuttable Presumption.

(a) Presumptions Generally.

(b) Intermediate Sanctions Rebuttable Presumption.

§ 5.2 Authorized Bodies.

§ 5.3 Conflicts of Interest.

§ 5.4 Appropriate Data.

(a) Knowledge and Expertise of Members.

(b) Relevant Information.

(c) Special Rules for Small Organizations.

§ 5.5 Documentation.

(a) General Rules.

(b) Rules as to Fixed and Nonfixed Payments.

(c) Absence of Inference.

§ 5.6 Rebutting the Presumption.

§ 5.7 Impact of Presumption.

Chapter 6: Applicability of Intermediate Sanctions.

§ 6.1 Excess Benefit.

§ 6.2 Initial Tax.

§ 6.3 Additional Tax.

(a) General Rules.

(b) Taxable Period.

§ 6.4 Correction.

(a) Concept of Correction.

(b) Forms of Correction.

(c) Correction Amount.

§ 6.5 Tax on Organization Managers.

(a) Definition of Organization Manager.

(b) Certain Committee Members.

(c) General Rules.

(d) Definition of Participation.

(e) Definition of Knowing.

(f ) Reliance on Professional Advice.

(g) Definition of Willful.

(h) Definition of Occurrence.

§ 6.6 Abatement.

(a) Initial Tax.

(b) Additional Tax.

§ 6.7 Period of Limitations.

§ 6.8 Revocation of Tax Exemption.

(a) General Rules.

(b) Private Inurement and Intermediate Sanctions.

(c) Commentary.

§ 6.9 Reporting Requirements.

§ 6.10 Deductibility of Taxes and Correction Amounts.

§ 6.11 Reimbursements and Insurance.

Epilogue.

Appendix A: Intermediate Sanctions Rules Executive Summary.

Appendix B: Intermediate Sanctions Law.

Appendix C: Intermediate Sanctions Legislative History.

Appendix D: History of Intermediate Sanctions.

Appendix E: Frequently Asked Questions About the Intermediate Sanctions Rules.

Appendix F: An Introduction to I.R.C. 4958 (Prepared by the IRS).

Appendix G: IRS Summary of Fringe Benefits.

Appendix H: Planning for Compliance.

Appendix I: Afterthoughts.

Table of Cases.

Table of IRS Revenue Rulings and Procedures.

Table of IRS Private Rulings.

Glossary.

Selected Bibliography.

Index.

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BRUCE R. HOPKINS, a lawyer with the firm Polsinelli, Shalton & Welte, is the country's leading authority on tax-exempt organizations. He is also the author of thirteen books, including The Legal Answer Book for Nonprofit Organizations; The Law of Tax-Exempt Organizations, Eighth Edition; The Law of Fundraising, Third Edition; Private Foundations: Tax Law and Compliance; A Legal Guide to Starting and Managing a Nonprofit Organization, Second Edition; The Nonprofits' Guide to Internet Communications; and The Tax Law of Charitable Giving, Second Edition, as well as the newsletter The Nonprofit Counsel, all published by Wiley.
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