Doing the right thing – Avoid excess benefit transactions
Abstract: One way to lose tax-exempt status is to ignore the private benefit and private inurement — also known as excess benefit — provisions of the Internal Revenue Code. These rules prohibit an individual inside or outside a nonprofit from reaping an excess benefit from a transaction by the organization. Excess benefits can take many forms, such as excessive compensation, favorable sales of assets, below-market property rental and lending money. Being knowledgeable about such transactions involves understanding such concepts as private benefit and private inurement, and knowing board members’ duty of care and the consequences of violations.