Substantial Influence

(1) Persons who have a substantial influence. According to Treas. Reg. 53.4958 3(c), a person who holds any of the following powers, responsibilities, or interests is in a position to exercise substantial influence over the affairs of the ATEO:

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a. Voting members of the governing body. A voting member of the governing

body including any individual serving on the governing body of an organization who is entitled to vote on matters over which the governing body has authority. See Treas. Reg. 53.4958-3(c)(1).

b. Presidents, chief executive officers, or chief operating officers. A person

who, regardless of title, has ultimate responsibility for implementing the decisions of the governing body or for supervising the management, administration, or operation of the organization (such as the president, chief executive officer, or chief operating officer). Persons serving as president, chief executive officer (CEO) or chief operating officer (COO) have ultimate responsibility unless the person demonstrates otherwise. If two or more individuals share ultimate responsibility (together or individually), then each individual is in a position of substantial influence. See Treas. Reg. 53.49583(c)(2).

c. Treasurers and chief financial officers. A person who, regardless of title,

has ultimate responsibility for managing the finances of the organization (such as the treasurer or chief financial officer). Persons serving as treasurer or chief financial officer have ultimate responsibility unless the person demonstrates otherwise. If two or more individuals share ultimate responsibility (together or individually), then each individual is in a position of substantial influence. See Treas. Reg. 53.4958-3(c)(3).

d. Persons with a material financial interest in a provider-sponsored

organization. For purposes of Section 4958, if a hospital that participates in a provider-sponsored organization (as defined in Section 1855(e) of the Social Security Act, 42 U.S.C. 1395w–25) is an ATEO, then any person with a material financial interest (within the meaning of Section 501(o)) in the provider-sponsored organization has substantial influence with respect to the hospital. See Treas. Reg. 53.4958-3(c)(4).

(2) Persons who don’t have a substantial interest. According to Treas. Reg.

53.4958-3(d), the following persons are deemed not to be in a position to exercise substantial influence over the affairs of the ATEO:

a. Tax-exempt organizations described in Section 501(c)(3) and exempt from

tax under Section 501(a).

b. Certain Section 501(c)(4) organizations, only where an ATEO is described in

Section 501(c)(4) and Treas. Reg. 53.4958-2(a)(4), including any other organization so described, and

c. Any part or full-time employee of the ATEO, who meet specific criteria in the

Code or Treas. Reg., as follows:

• Receives economic benefits, directly or indirectly from the

organization, of less than the amount for a highly compensated employee in Section 414(q)(1)(B)(i),

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• Is not described in Treas. Regs. 53.4958-3(b), statutory categories of disqualified persons, or (c), persons having substantial influence, with respect to the organization, and

  • Is not a substantial contributor to the organization within the meaning

of Section 507(d)(2)(A), taking into account only contributions received by the organization during its current taxable and the four preceding taxable years.

(3) Affiliated organizations. In the case of multiple organizations affiliated by

common control or governing documents, the determination of whether a person has substantial influence is made separately for each organization. A person may be a disqualified person regarding transactions with more than one organization. See Treas. Reg. 53.4958-3(f).

(4) Case Law. In Farr v. Commissioner, T.C. Memo 2018-2, (2018), aff’d 738 Fed.

Appx. 969 (10th Cir. 2018), cert. denied 139 S.Ct. 1263 (2019), the court confirmed that the taxpayer, chief executive officer and member of the board of directors, was a “disqualified person” with respect to the organization for purposes of determining whether the taxpayer was liable for excise taxes arising from excess benefit transactions during the three taxable years at issue. The taxpayer was in position to exercise substantial influence over the organization's affairs during each year.