The main issue in accordance to Tax exempt 501 © 3 tax exempt status can be lost for charitable companies or panelized severely as a result of paying physicians or other executive management beyond their fair market value (IRS, 2016, 1). Under Tax Exempt 501©(3) the significant principle for all organizations to ensure that transparency is enhanced in all transaction in accordance to the mission and the purpose of the charitable. This is enhanced as a result of providing enough protection to the organization for tax exempt status. According to IRS includes that the most effective approach for a charitable organization to ensure accountability and transparency is to ensue clarity to articulated purpose that explains its objective or mission in addition of a committee management team and a governing body(IRS, 2016, 1). Therefore the written policies and laws of the company require sufficient direction on how the compensation of the executive is established and the specific circumstances under which determination is made together with the inclusion of the overall procedure. In order to achieve these terms a compensation package is required to be offered by the organization that is appealing and marketable to the qualified individuals. This implies that the duty of loyalty is applicable to each director allowing the director to act not in accordance to his personal interest but the charity’s interests. The most effective approach to ensure accountability and transparency and allow the exemplification of the loyalty duty is to develop a compensation review team that is independent and satisfies the rules of IRS included in section 4958. Failure of the rules satisfaction under the IRS section can lead to excise tax imposition of 25% on disqualified individual, 100% to the management and 200% excess benefit to the disqualified individual 3(IRS, 2016, 1). Therefore repayment includes the organization is restored to financial position that either exceeds the company’s financial position in accordance to payments on excess benefit.
The CEO’S initial data may be applied to formulate whether a compensation increase is warranted but it is not applicable in formulating the decisions. First, the data provided by the CEO is not effective in several aspects. The fact that the CEO made a selection or choice of the specific information that needs to determine his compensation is not a transparent initiative. This implies that transparency is not enhanced leading to a conflict of interest of the transactions. On the other hand, the CEO does not qualify in discussion and according to the rules of IRS states that within an organization, there are specific individuals identified as disqualified and include governing body voting members, persons with presidential responsibilities that includes the CEO and individuals with treasurer responsibilities (IRS, 2016, 1)
It is important to understand that the independent committee is supposed to be independent directors without any conflict of interests. Accordidng to section B of the Form 990 section VI requests whether the overall procedure applied in compensation determination by the management official involved an approval and review by comparable data in order to be in a position to qualify In the rebuttable level of IRS under section 4958 hence, the IRS will be in a position to determine if the committee decisions on compensation procedures is not involved with the conflict of interest in accordance to the overall transactions. ,
The next step involves IRS reviewing the information in order to determine whether an organization is able to qualify in the presumption criterion. It is important to acknowledge that presumption qualifications are significant and a means of validity. Once the IRS determines, the presumptions may be rebut as a result of reasonability of a specific amount of compensation if it creates contract evidence that is sufficient for rebut (IRS, 2016, 1). Therefore the information presented on the compensation package is significant. The compensation is measured in the aspect of bonuses, salary’s, travel allowances and against the compensations made to the individuals same market. Therefore, the CEO presented data was anecdotal data retrieved from talking with some larger or smaller hospitals in different cities.
The most effective approach that requires to be applied includes retaining the consultants qualified compensation services and assert to the individual to ensure that the information was retrieved from a similarly situated company that’s puts into consideration the functions of the organization, the size, training and experience, market and finally work performance complexities. After wards the IRS reviews the data putting into consideration the study independence. Adequate documentation is also a significant aspect that entails the organization in seeking thee presumptions in accordance to the validity then the methodology, data and procedures are supposed to be reviews by the IRS. According to the Form 990 explains that the board is supposed to verify that the decisions for compensation involved an approval and review by independent individuals (IRS, 2016, 1). Therefore, in order to achieve this there is need of a detailed preparation by the consultant that reports of the raw data, interpretations methodology and conclusions. Therefore, the detailed minutes developed in meetings and any additional data needs to be kept by the committee and finally, the presented final decisions should be in attachments that support the data and presented to the committee and the board. Finally, the answer to the question whether the health care provider was in a position to explain the basis and the amounts through which it is in a position to compensate its physicians and officers should be provided.
Cornell University Law School 2016; 26 US Code § 4958- Taxes on excess benefit transactions; retrieved from https://www.law.cornell.edu/uscode/text/26/4958
IRS, 2016. Exemption requirements- 501 ©(3) Organizations; retrieved from https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Exemption-Requirements-Section-501%28c%29%283%29-Organizations