Lauren Rogal, of Vanderbilt University Law School, has made available for download her article, “Executive Compensation in the Charitable Sector: Beyond the Tax Cuts and Jobs Act”, published in Vanderbilt Law School’s Faculty Publications. The abstract is as follows:
This Article examines charity executive compensation in light of the reforms enacted by the Tax Cuts and Jobs Act of 2017. Charities receive preferential tax treatment under Section 501(c)(3) of the Internal Revenue Code because they provide humanitarian, educational, and other services that benefit the public. The payment of excessive compensation undermines the policy purpose of charitable tax status by diverting resources from the public good to private gain. The costs are borne by the intended charitable beneficiaries, the subsidizing taxpayers, and the charitable sector as a whole, which requires public confidence to sustain its work.
The Tax Cuts and Jobs Act reformed charity compensation laws for the first time in decades, imposing an excise tax on compensation over $1 million. With its enactment, there are now three legal constraints on charity compensation that together provide piecemeal accountability. This Article deconstructs the three mechanisms, assessing their enforceability and metrics for appropriate compensation. It argues that the excise tax is the mechanism best tailored to the goals of Section 501(c)(3), but that it is impaired by a blunt and arbitrary metric. This Article then explores alternative metrics that may better align with the policy objectives of 501(c)(3) status and proposes avenues for further investigation.
Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.