What If An Organization Engaged In An “Excess Benefit Transaction?
The organization must disclose the Excess Benefit Transaction to the IRS. Individuals must file Form 4720 to report the imposition of an Excess Benefits Tax. Failure to file a complete disclosure form can trigger tax penalties. The excess benefit also may trigger three taxes. First, the disqualified person may have to pay a 25% tax on the excess benefit. Second, if the excess benefit is not “corrected” (paid back or reversed) before the IRS assesses the first tax, the disqualified person is slapped with an additional tax of 200% of the excess benefit. Third, “managers” of the organization (which includes officers, directors, trustees, or persons wielding similar powers, including committees of the Board who approved the transaction) are subject to a 10% tax on the excess benefit, up to $10,000 for each Excess Benefit transaction, if the managers “knowingly” approved the transaction. These taxes are joint and several (full tax imposed on each individual involved). The proposed regulatio