Intermediate Sanctions - Who Is A Disqualified Person?

Who Is A Disqualified Person?

You are a disqualified person if you are a person who, during five years beginning after September 13, 1995, and ending on the date of the transaction in question, were in a position to exercise substantial influence over the affairs of the exempt organization. Note: You can be an individual, another organization, a partnership or unincorporated association, trust or estate.

In affiliated organizations, your substantial influence must be determined separately for each organization but benefits provided by a controlled entity will be treated as being provided by the exempt organization. A person may be a disqualified for more than one organization.

The intermediate sanction statute identifies certain persons as having substantial influence as a matter of law — such persons are conclusively presumed to be disqualified persons. The temporary regulations identify additional categories of those who have a substantial influence. The IRS considers these individuals to be presumptively disqualified.

Under the statute, the following are disqualified:

• A family member (spouse, siblings and their spouses, ancestors, children, grandchildren, great grandchildren, and spouses of children, grandchildren and great grandchildren) of a disqualified person. A legally adopted child is a child.

• An organization (corporation, partnership, trust or estate) owned 35% or more, directly or indirectly, by a disqualified person, or family member(s). This does not include voting rights held only as a director, trustee, or other fiduciary, without any stock, profit or other beneficial interest.

Other persons defined by the regulations as having substantial interest include:

• Members of the governing board of the organization who are entitled to vote on matters over which the governing body has authority (e.g., directors, elders, trustees, steering committee members, etc.).

• Executive officers of the organization, such as president, chief executive officer, and chief operating officer — the exact title is used is irrelevant; includes any individual who has ultimate responsibility for implementing board decisions or for supervising the management, administration or operations of the organization. Responsibilities may be shared by more than one individual. If a person has a title of president, chief executive officer or chief operating officer that person will be disqualified unless they can show otherwise.

• The treasurer or chief financial officer — including anyone who has or shares responsibility for managing the organization's financial assets, regardless of actual title. Several persons may share this responsibility. Once again, any person with the title of treasurer or chief financial officer will be considered to have this ultimate responsibility unless shown otherwise.

• If a hospital participates in a provider-sponsored organization then any person who has a material financial interest in the organization (e.g., a person involved in a joint venture with the organization).