Tax Exempts Are Businesses, Too

Tax exempt organizations under Section 501(c) and similar Internal Revenue Code Sections need to operate more like their for-profit and taxable counterparts than ever before.

Whether it is operations and management or human resources, both the economic environment and the competition for talent are putting tax exempt and taxable into the same league when it comes to business operations and the challenge of finding top talent. The need for tight management of day-to-day business and budget constraints are impacting most organizations no matter the tax-paying status.

For example, while most tax-exempt organizations pay no income tax, they do pay a 21% excise tax on certain compensation paid that exceeds $1 million in a year. This would impact a lot of healthcare and higher education institutions. It might also impact an organization that generally has compensation well below $1 million but has a 457(f) or similar plan that has accumulated to more than $1 million and will generate the tax on the amount of compensation that exceeds $1 million in the year of distribution. For example, a $1.5 million distribution would cost the organization $105,000 in excise tax.

Tax exempts cannot offer stock or other equity benefits and are limited in several ways as to compensation. Further, certain tax-exempt organization plans (such 457(f)) must have a risk of forfeiture for certain terminations of employment prior to a date or event set in the plan document

We review the current benefit package and potential needs with leadership, including, where appropriate, Board leadership. We would then make a recommendation to senior management and the Board for implementation. Often recommendations create parity for the executive team as tax exempts may have benefit packages that fall short when matching executive and rank and file benefits (reverse discrimination).

We work with your legal counsel and accountants to make sure that any new Plan is properly established, documented and funded.

After implementation, we establish an agreed schedule for reviewing the Plan to see if it continues to meet goals as well as maintaining appropriate values over time.

Our process is not complicated:


Introductory conference call, video or visit


Design a Plan that meets the goals and needs of the parties

a. Business/practice valuation
b. Legal format decision making
c. Documentation and funding


Implementation and maintenance of the Plan.

To set a conference call (phone or video) or in person appointment, contact: