IRS says compensation disclosure lacking

An Internal Revenue Service inquiry into not-for-profits’ executive compensation found widespread disclosure errors and raised “considerable concern” about loans to directors, officers and key employees, according to a summary of the findings.

Of the roughly 1,200 tax-exempt organizations initially surveyed by IRS, including hospitals and health systems, more than 30% were required to amend annual IRS filings, the Form 990. The initiative, under way since 2004, included a second wave of closer examinations for 782 tax-exempt organizations, which resulted in proposed penalties totaling more than $21 million against 40 individuals or not-for-profit subsidiaries for excessive executive compensation or failure to properly report pay, largely among private foundations. Of the second raft of examinations, 10% remain open.

A third wave of IRS examinations was prompted by concerns about loans of more than $100,000 by tax-exempt organizations to key employees or board members; results have not yet been released, the report said.

The report cautioned the agency’s findings could not be considered a “definitive statement” of compensation problems plaguing the entire tax-exempt sector, but went on to call for continued inquiries and revisions on the Form 990 to curb errors and heighten loan disclosure.

Regulators’ continued interest in executive pay should heighten tax-exempt healthcare’s focus on executive pay, said Gerald Griffith, a Chicago healthcare attorney with Jones Day. The agency’s ongoing efforts have raised awareness of proper pay practices and likely lessened regulators’ tolerance for errors. “Everybody’s getting more educated,” Griffin said. “They’re going to be less forgiving.” — by Melanie Evans of Modernhealthcare’s Daily Dose.

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