Intermediate Sanctions - Not A Disqualified Person

Not A Disqualified Person

Under the temporary regulations certain persons are deemed not to have substantial influence including:

• 501(c)(3) organizations.

• With respect to a 501(c)(4) organization, another organization described in 501(c)(4).

• Employees who do not fit into one of the categories listed above, provided they are not highly compensated employees (as defined in section 414(q)(1)(B)(i) - compensation in excess of $80,000, as adjusted by the IRS) or substantial contributors (as defined in section 507(d)(2)(A), taking into account only contributions received during the current and the four preceding taxable years).

Facts and Circumstances Test

Whether an individual or organization is a disqualified person in any cases not under the above categories is determined by a facts and circumstances test. The regulations include two lists of facts and circumstances (1) including facts and circumstances that tend to show an individual has substantial influence and (2) including facts and circumstances that tend to show a person 'does not have substantial influence.

(1). Facts and circumstances which tend to show a person has substantial influence include:

1. The person founded the organization.
2. The person is a substantial contributor to the organization (as defined in section 507(d)(2)(A), taking into account only contributions received during the current taxable year and the four preceding taxable years).
3. The person's compensation is primarily based on revenues derived from an activity of the organization or a part thereof that the person controls (see further discussion about percentage payments, below).
4. The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees.
5. The person manages a discrete segment or activity of the organization that represents a substantial portion of the organization's activities, assets, income or expenses, as compared to the organization as a whole. For example, a person who manages one department that contributes significantly to the whole may be a disqualified person.
6. The person owns a controlling interest (measured either by vote or value) in an organization (corporation, partnership, trust) that is a disqualified person.
7. The person is a non-stock organization (such as a social club, homeowners association, etc.) controlled, directly or indirectly, by one or more disqualified persons.

(2). Facts and circumstances which tend to show a person has no substantial influence include:

1. The organization is a religious organization and the person has taken a "bona fide" vow of poverty as an employee or agent, or on behalf of the organization.
2. The person is a contractor (e.g. an attorney, an accountant, or investment manager or advisor) whose sole relationship to the organization is providing professional advice (without having decision-making authority) with respect to transactions from which the contractor will not economically benefit, either directly or indirectly, apart from customary fees received for the professional advice rendered.
3. The direct supervisor of the individual is not a disqualified person.
4. The person does not participate in any management decisions affecting the organization as a whole or a discrete segment or activity of the organization that represents a substantial portion of the organization's activities, assets, income or expenses, as compared to the organization as a whole.
5. Any preferential treatment a person receives which is based on the size of the person's donation, is also offered to all other donors making a comparable contribution as part of a solicitation intended to attract a substantial number of contributions.