Intermediate Sanctions - Who Is An Organization Manager?

Who Is An Organization Manager?

An organization manager is any officer, director, trustee, or person having similar powers or responsibilities, regardless of his or her title. A person is an officer if specifically so designated under the articles or bylaws of the organization, or if he or she regularly exercises general authority to make administrative or policy decisions for the organization. If a person only makes recommendations, but cannot implement decisions without approval of a superior, that person is not an officer. The regulations make it clear that a contractor who acts solely in a capacity as an attorney, accountant, or investment manager or advisor is not an officer.

An organization manager includes anyone on a committee of the board (whether a member of the board), if the organization is claiming that the rebuttable presumption of reasonableness (see below) is based on the committee's (or the designee's) actions. If the committee is responsible for determining the reasonableness of a transaction, and this determination is relied upon by the organization, every member of the committee will be considered an organization manager.

When Does an Organization Manager Participate in a Transaction?

Silence or inaction can be participation by the organization manager if the manager is under a duty to speak or act, as well as any affirmative action. Abstention is considered consent to a transaction. If a manager has opposed the transaction in a manner consistent with his/her responsibilities to the organization, the manager will not be considered to have participated in the action.

Knowing Participation — Knowing means that the manager:

• has actual knowledge of sufficient facts which indicate, based solely on those facts, the transaction is an excess benefit transaction,
• is aware that the transaction may violate the law, and
• negligently fails to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction or is, in fact, aware that it is such a transaction.

Although knowing does not mean having reason to know, under the regulations, evidence that a manager has reason to know is relevant to determine whether the manager has actual knowledge. It is up to the IRS to prove that the manager knowingly participated.

If an organization manager relies on a reasoned written opinion of an appropriate professional, his or her participation will ordinarily not be considered knowing. In addition, an organization manager's participation is ordinarily not considered knowing if the requirements of the rebuttable presumption of reasonableness are satisfied.

Willful Participation — an organization manager participation is willful if it is voluntary, conscious and intentional. It is not willful if the manager does not know that the transaction is an excess benefit transaction.

Due to Reasonable Cause — if the manager exercised responsibility on behalf of the organization with ordinary business care and prudence participation is due to reasonable cause.