First of all let us understand what is mean by excessive benefits
excessive benefits means it occur when a person who is defined by law as an “insider” receives unwarranted compensation or a low-interest loan or pays the organization below-market rent
Certain types of educational, religious and other tax-exempt, nonprofit organizations need to be careful that their leaders do not receive “excess benefits
consequences of paying/receiving excessive benefits
- such excess benefits (as well as organization managers who knowingly approve “excess benefits transactions”) could be subject to “intermediate sanctions”: federal excise taxes that impose a personal liability
- the organizations themselves might be affected adversely if the excess benefits are revealed to donors or the public, which they often are
- Intermediate sanctions consist of a first-tier excise tax equal to 25 percent of the excess benefit. The insider is personally liable for this tax and must repay the excess benefit to the organization
- Failure to “correct” the transaction by the end of the year in which the first-tier tax is imposed may result in a second-tier excise tax equal to 200 percent of the excess benefit
- Individuals who are “organization managers”—including board members—may be subject to an excise tax equal to 10 percent of the excess benefit for participating in an excess benefit transaction
