Page 110 - Washington Nonprofit Handbook 2018 Edition

d. “Excess Benefit”

An “excess benefit transaction” is any transaction in which a 501(c)(3) or

501(c)(4) organization provides an economic benefit, either directly or indirectly, to
a disqualified person, where the value of that economic benefit exceeds any value
that the organization receives in return, including the value of services performed
for the organization. For example, the payment of a salary of $50,000 for services,
where the fair market value of the services is $25,000, is an excess benefit
transaction.

Reasonable expenses for board members to attend meetings, as long as
these do not include luxury travel or payments for spouses, do not constitute
excess benefit transactions. Similarly, benefits provided to the public in exchange
for an annual membership fee of $75 or less, such as discounted admission to
events or receipt of a newsletter, do not constitute excess benefits.

e. Rebuttable Presumption of Reasonableness

An organization can establish a rebuttable presumption that a transaction is
reasonable (and therefore not an excess benefit transaction) when the three
requirements set out below are satisfied. In general, organizations should seek to
satisfy the rebuttable presumption in approving any transaction with or
compensation involving a potential disqualified person, including payment of a
salary. If an organization is unable to establish the rebuttable presumption,
however, there is no inference that it is an excess benefit transaction. The three
requirements are:

1) Approval by Independent Board or Committee. The
transaction must be approved by a board or committee
authorized under state law and composed entirely of individuals
who do not have a conflict of interest with regard to the
transaction and are not related to or under the direction and
control of a disqualified person who does have a conflict of
interest.

2) Appropriate Comparability Data. The board or committee
must rely on appropriate comparability data. The issue of what
data is appropriate is critical.

y Where the transaction involves the purchase or sale of
property, an independent appraisal is appropriate data.

WASHINGTON NONPROFIT HANDBOOK -99- 2018