WASHINGTON – The IRS is clearly taking a closer look at creditunions these days, but it looks like credit unions will be sparedat least one emerging area at the IRS. Last fall, the IRS rankedexecutive compensation at nonprofit organizations as one of severalareas that needed more scrutiny. This summer, the agency will begina due diligence search that will take a closer look at how salarypackages are set up and how they appear on income returns. “Thereare concerns that there may be excessive compensation,” said an IRSspokesman from the agency's tax-exempt division. “Our goal is toensure that income and assets are duly benefiting the individuals.”The spokesman said the IRS is in the final stages of rolling out acompensation initiative that will look more broadly at C3 and C4groups, which includes churches, schools, universities, socialwelfare organizations and homeowners' associations. Under Section4958 of the IRS Code, credit unions are considered C14s and willnot be looked at by the IRS although they are tax-exempt entities,he said. Executives or board members at nearly 200 nonprofits havealready been identified for closer inspection, Steve Miller,director of the IRS's exempt-organizations division recently toldthe Wall Street Journal. The spokesman said the groups will becontacted this summer to receive education and guidance butenforcement will also occur. While the IRS has the power to revokea nonprofit's tax-exempt status, it would take an act from Congressto allow the agency to target federally-chartered credit unions. In1977, the IRS came close to revoking a New Hampshire credit union'stax exemption but a federal court ruled that it had met allrequirements to maintain that status, the IRS spokesman said.Indeed, for credit unions, the news is timely given the IRS' April9 private letter ruling that allowed a federally-chartered creditunion to offer one of its executives a 457 deferred compensationplan using a for-profit, more tax-friendly model. The spokesmansaid the letter came from the IRS employee plans division and couldnot offer any further comment, only saying that private letterrulings do not set a precedent. In determining what an individualwill be paid, nonprofits generally should look at similarorganizations with attributes that closely mirror their own, theIRS spokesman said. The duties, career experience and jobrequirements of a comparable individual at a similar organizationcan also be used as a guide in determining salary and benefits.“Hypothetically, looking at a credit union, a comparableinstitution would probably be a bank performing similar roles,” thespokesman said. IRS' enforcement authorities with nonprofits forexcessive compensation are still fairly new, and while there a fewpending court cases, the individual does have the right to dueprocess including requesting an appeal, the spokesman said. Anaudit typically reveals red flags, which has led to nonprofits'tax-exemption being revoked in the past. If tax-exempt Sec.501(c)(3) and Sec. 501(c)(4) organizations fail to properly reportcompensation for certain employees, it may result in intermediatesanctions penalties under Section 4958 of the regulations assessedagainst the “influential” or “disqualified persons,” according tothe IRS. Influential persons are those that receive benefits, suchas compensation, fringe benefits or contract payments. Adisqualified person is any person who was in a position to exercisesubstantial influence over the affairs of the applicable tax-exemptorganization at any time during a five-year period ending on thedate of the transaction he or she was involved in. This categoryalso includes persons who hold certain powers, responsibilities orinterests and are among those who are in a position to exercisesubstantial influence over the affairs of the organizations. Thereare nearly 1.8 million U.S. nonprofits and 29 categories oftax-exempt organizations, according to the [email protected]