Does the IRS require salary information for tax exempt status applications?
The IRS wants to know what percentage of the overall budget is devoted to salaries. If salaries are large, the IRS may determine the Nonprofit is actually benefiting the salaried directors, not the Nonprofit's programs.
In addition, the IRS wants to see how much each board member is paid. Nonprofit 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 Nonprofit 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.
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