Joan A. Disler, Chair of the Employee Benefits Practice, and Michelle Capezza and Gretchen Harders, Members of the Firm in the Employee Benefits Practice, co-wrote an article titled “Executive Compensation in the Headlights: Challenges Ahead for Not for Profit Hospitals in Compensating Executives.”
Executive compensation practices of hospitals have become subject to intense public scrutiny and increasing government regulation and are now being examined under the basic tenets of the income tax law. The article examines the rules, applications and penalties associated with any failure to comply with IRS requirements. After a review of the rules applicable to the taxation of deferred executive compensation, the article then discusses the requirements for reasonable compensation and the ”intermediate sanctions” that may be imposed both upon the executive and the tax-exempt health care entity’s officers, directors, or trustees if the IRS establishes that payments are unreasonable or excessive compensation. Finally, the article looks at the recent focus by the IRS and other governmental agencies on audits of tax-exempt health care entities. Knowing the rules and establishing practices that comply with them are key to withstanding the scrutiny by the government and the adverse publicity that can accompany these audits.