Definition

(1) An excess benefit transaction is defined in Treas. Reg. 53.4958-4(a)(1) as:

a. A transaction where an economic benefit is provided by an ATEO,

b. Directly or indirectly, to or for the use of any disqualified person, and

c. The value of the economic benefit provided by the organization exceeds the

value of the consideration (including the performance of services) that the organization received from the disqualified person in exchange for the benefit.

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(2) Treas. Reg. 53.4958-4(a)(1) also provides the following guidance:

a. In determining whether an excess benefit transaction has occurred, all

consideration and benefits exchanged between a disqualified person and the ATEO and all entities it controls are considered.

b. In determining the reasonableness of compensation paid (or vested, or no

longer subject to a substantial risk of forfeiture) in one year, services performed in prior years may be considered.

(3) The amount that the benefit exceeds the value of the consideration is the excess

benefit and the amount that the excise tax is imposed on except for special situations involving DAFs and supporting organizations. See Section 4958(c)(1), (2) and (3).

Note: See also section II.C.8, Special Rules for DAFs and section II.C.9, Special Rules for Supporting Organizations, in the following paragraphs.

(4) The imposition of an excise tax under Section 4960 (Tax on excess tax-exempt

organization executive compensation) isn’t determinative of whether compensation is an excess benefit transaction under Section 4958 and vice versa. See Notice 2019-09, 2019-04 I.R.B. 403, Q 36.