Page 109 - Washington Nonprofit Handbook 2018 Edition

organization manager is 10% of the excess benefit, up to a maximum of $20,000 for
each excess benefit transaction. In our example, the tax on an organization
manager would be $600 ($600 is 10% of the excess benefit, which was $6,000).

The intermediate sanctions rules do not impose a penalty tax on the exempt
organization itself.

c. “Disqualified Person”

A “disqualified person” is a person who is in a position to exercise substantial
influence over an organization with respect to a transaction. Once a person is
classified as a disqualified person, he or she will continue to be a disqualified
person for a period of five years after ceasing to exercise such influence. A
member of a disqualified person’s family is also a disqualified person, as is a
corporation, partnership, trust or estate in which a disqualified person directly or
indirectly owns more than a 35% interest.

Under Treasury Regulations, a voting member of a 501(c)(3) organization’s
governing body is automatically a disqualified person, as are the organization’s
president, chief executive officer, chief operating officer, treasurer, chief financial
officer, and any management company that performs services for the exempt
organization. An individual’s authority and responsibilities, rather than the person’s
title, determines whether he or she holds one of these positions. An individual who
has or shares ultimate responsibility for implementing the governing body’s
decisions or supervising the organization’s management, administration or
operations will be a disqualified person, as will anybody who has or shares ultimate
responsibility for managing an organization’s financial assets, including check-
signing authority, and authority to authorize electronic fund transfers.

Treasury Regulations provide that an employee who receives economic
benefits from an exempt organization of less than $120,000 per year is not a
disqualified person, so long as the individual is not otherwise a disqualified person
under one of the categories above. For example, an executive director who
receives $50,000 per year will be a disqualified person by virtue of his/her role,
regardless of the fact that his/her salary is less than $120,000.

In cases not covered by the rules above, whether a person is a disqualified
person is determined on the basis of all relevant facts and circumstances bearing
on the person’s level of influence over the organization.

WASHINGTON NONPROFIT HANDBOOK -98- 2018