Intermediate Sanctions Compliance

Using market knowledge allows a not-for-profit organization to mitigate its risk exposure to intermediate sanction penalties. 


Findley was contacted by a nationally known, not-for-profit organization with 100 employees. The organization had shown tremendous growth over the past 10 years and was overseen by a large board of directors composed of many of the area’s prominent business leaders.


A not-for-profit organization is given tax-exempt status via the IRS under the condition that it meets and maintains certain requirements. Part of the process for maintaining its not-for-profit status typically involves an IRC §4958 “Intermediate Sanctions” analysis for any person who has “substantial influence” over the organization. Because of the organization’s growth under the existing CEO, the Board, in an attempt to retain the CEO, approved a supplemental retirement plan beyond the 403(b) plan covering all employees’ additional benefits and perquisites. Findley was initially contacted to evaluate the organization’s CEO’s compensation package and review all the additions that had been made over time.

Upon reviewing the CEO’s compensation package, Findley determined that there were indications of compensation beyond the spirit of IRC §4958 and that an in-depth analysis should be done. At the same time, the media was informed and published information on the CEO’s total compensation, causing a public outcry over what was deemed to be an excessive compensation package for the CEO of a not-for-profit organization.


Upon determining that the CEO’s compensation could be in violation of IRS regulations for excessive compensation for not-for-profits, Findley suggested—and the board approved—an Intermediate Sanctions analysis be done for all employees who had a substantial influence over the organization. To help the organization mitigate its risk exposure, Findley reviewed the top five executives of the organization and analyzed their compensation packages (including benefits) over a three-year period. Findley evaluated the executives’ compensation from three different angles:

  • Compared to other locations around the country of this specific not-for-profit,
    using the client’s demographics as a starting point to build a database;
  • Compared to survey market data for all not-for-profits with comparable donations;
  • Compared to survey market data for all businesses possessing a similar “income” stream.

Findley was able to conclude that four of the five executives were not in violation of the IRS’s regulations but that one executive, the CEO, could be.


The board of directors took Findley’s analysis into consideration and revised the organization’s compensation philosophy from the cash, benefits, and perquisites perspectives to be well within the norms for an organization of its size. In doing so, the organization has been able to retain its not-for-profit status and avoid having to pay fines for IRC §4958 violations.

Category: Findley Proof