Safe Harbor Provision of The Law
Congress, in the legislative history, intended to create a rebuttable presumption of reasonableness, or safe harbor. Under this safe harbor, compensation is presumed to be reasonable and a property transfer is presumed to be at fair market value if: (1) the compensation arrangement or terms of transfer are approved, in advance, by an authorized body of the exempt organization, composed entirely of individuals without a conflict of interest, (2) the board or committee obtained and relied upon appropriate data as to comparability in making its determination; and (3) the board or committee adequately documented the basis for its determination, concurrently with making the decision.
The disqualified person or organization manager has the initial burden of proving that the compensation was reasonable. If the three criteria above are met, the burden of proof shifts to the IRS and the IRS must prove that the compensation was unreasonable. The IRS can rebut the presumption with sufficient contrary evidence showing the compensation was not reasonable or showing a transfer not to be at fair market value.
Read more about this topic: Intermediate Sanctions
Famous quotes containing the words safe, harbor, provision and/or law:
“Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions.”
—James Madison (1751–1836)
“The disabusing a man strongly possessed with an opinion of his own worth is the very same ill office that was done to the fool at Athens, who fancied all the ships that came into the harbor were his own.”
—François, Duc De La Rochefoucauld (1613–1680)
“On every formal visit a child ought to be of the party, by way of provision for discourse.”
—Jane Austen (1775–1817)
“The due process of law as we use it, I believe, rests squarely on the liberal idea of conflict and resolution.”
—June L. Trapp (b. 1930)