Exempt Organizations Technical Guide›TG 65: Excise Taxes - Excess Benefit Transactions - IRC Section 4958›Table of Contents
Determining the Value of an Excess Benefit Transaction
0224 Publ 5835 (PDF) · 2026-10-03 edition · updated 2026-10-04 · United States
(1) One of the most difficult audit issues is determining if an excess benefit transaction
has occurred. Determining the value of the transaction, itself, will help decide if the transaction meets the criteria for an excess benefit transaction.
a. In general, excess benefit transactions involve the transfer of property or
payments for services.
b. If the issue is property (including the right to use property), Treas. Reg.
53.4958-4(b)(1)(i) notes that the value is fair market value for purposes of Section 4958.
c. If the issue is compensation, the value is the amount that would ordinarily be
paid for like services by like enterprises under like circumstances, otherwise
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known as “reasonable compensation.” Section 162 standards apply in determining reasonableness of compensation. See Treas. Reg. 53.49584(b)(1)(ii)(A).
(2) To determine a property’s fair market value, the examiner may want to consider a
referral to Engineering. Request Engineering help as early in the issue development as possible. See IRM 4.70.16.4, Requesting Technical Assistance from Specialists (or its successor).
(3) To determine if an excess benefit transaction has occurred, take into account all
consideration and benefits exchanged between a disqualified person and the ATEO as well as any entities it controls. However, generally economic benefits that are excluded from income under Section 132 are disregarded for purposes of Section 4958. See Treas. Reg. 53.4958-4(a)(4).
(4) Examples of economic benefits included in determining the value of services
rendered and whether the compensation is reasonable are:
a. Cash and non-cash compensation (salary, fees, bonuses, severance
payments, deferred compensation)
b. Payment of liability insurance premiums
c. Other payments on behalf of the disqualified person (penalties, tax
expenses, civil proceeding expenses, expenses resulting from an act or failure to act)
d. Other compensatory benefits (expense allowances or reimbursements paid
under a non-accountable plan, such as travel or auto expenses)
e. Foregone or below-market interest on loans
See Treas. Reg. 53.4958-4(b)(1)(ii)(b).
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