Whats An “Excess Benefit?
An excess benefit is one that exceeds Fair Market Value for the benefit received by the organization, or is not “comparable” to similar benefits paid by similar tax-exempt organizations. Fair Market Value is what an ordinary seller and an ordinary buyer would agree upon as a price; “comparability” means that the organization can show that it examined similar transactions by at least five similar organizations (larger organizations must look at more than five). Any deviation from FMV or comparability must be documented with an explanation of the factors which permit the organization to pay more than the “going rate.” These “FMV” and comparability tests are in addition (though similar) to the older “reasonableness” test used to determine “private inurement” to insiders. The IRS can decide a particular transaction produces an “excess benefit” even if the organization satisfies the “FMV” and “comparability” tests.
Related Questions
- In the Executive proposal, the Governor says that school districts could use excess funds in employee benefit accrued liability reserves. How would school districts obtain approval for that?
- Can an ALTCS applicant give away excess resources to become eligible for the benefit?
- What If An Organization Engaged In An "Excess Benefit Transaction?
