If a tax-exempt organization is found by the IRS to have paid unreasonable benefits, the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

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If executive compensation is found to be unreasonable, the executive is required to pay back the excess benefit to the tax-exempt organization. In addition, there is a tax penalty of 25 percent of the excess benefit on the individual receiving the compensation and a penalty of 10 percent on the individuals responsible for approving the compensation. If the executive receiving the excess benefits fails to repay the amount in a timely manner, an additional tax equal to 200 percent may be imposed by the IRS.

If a Tax-Exempt Organization Is Found by the IRS to Have