The IRS wants to know what percentage of the overall budget is devoted to salaries. If salaries are large, the IRS may determine the non-profit is actually benefiting the salaried directors, not the non-profit’s programs.
In addition, the IRS wants to see how much each board member is paid. Non-profit applications must justify why these directors are being paid this amount. If the amount is too high, the IRS will probably ask you to provide justification for the salaries or ask you to revise the numbers downward.
People who are being paid by the non-profit are also considered “interested” persons. In other words, it is in their interest to approve pay increases for themselves, especially if they are directors. If a majority of the board members are compensated, the IRS perceives a risk of pay increases spiraling out of control.
To learn more and speak with a representative, please call us at (888) 381-8758. We are happy to answer any questions you may have.