The Internal Revenue Service is conducting a National Research Program focusing on uncollected employment taxes for both for-profit and not-for-profit organizations. The IRS recently indicated the most common reason it imposes sanctions on tax-exempt organizations is the improper reporting of fringe benefits. When tax-exempt organizations provide fringe benefits as part of an executive’s compensation package, those benefits most be included when calculating the total compensation paid to that executive. If the fringe benefits are not treated as income, they will be considered an automatic excess benefit.
Accordingly, it is important that tax-exempt organizations have the appropriate reporting and accounting practices in place to accurately reflect all elements of compensation, including reimbursement for travel and other expenses. Employees must be required to substantiate reasons for the expenses and provide original receipts.
If you have any questions concerning these regulations or any other issues involving employee benefits, please feel free to contact us.