Payday Mayday–Compensation Rules for Private Foundations and Public CharitiesPayday Mayday–Compensation Rules for Private Foundations and Public Charities

Charitable organizations are often caught off-guard by the compensation rules for tax-exempt organizations. Implementing proper protocols before compensating directors, officers, trustees and key employees is necessary to help meet Internal Revenue Service requirements and avoid excise taxes.

PFs and PCs

Private foundations (PFs)¹ and public charities (PCs)² are tax-exempt charitable organizations under Internal Revenue Code Section 501(c)(3) to which contributions are generally tax deductible.³ Both PFs and PCs are subject to various excise tax rules and must avoid providing impermissible private benefits and inurement or risk losing their IRC Section 501(c)(3) status.⁴

When a PF or PC considers its expenses, including compensation, it sho...