What is Excess benefit transaction?
In short
An excess benefit transaction occurs when a public charity or social welfare organization gives an insider (a disqualified person) an economic benefit worth more than what it receives, such as excessive pay. Penalty excise taxes, called intermediate sanctions, apply.
Key takeaways
- The insider owes 25% of the excess benefit, rising to 200% if it isn't corrected.
- Managers who knowingly approve it owe 10%, up to $20,000 per transaction.
- Approval by an independent board using comparable data creates a presumption of reasonableness.
Where it's tested
REG: Exempt Organizations Basics — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A tax-exempt museum operates a gift shop. Which activity would most likely generate unrelated business taxable income?