What is reasonable compensation?
Reasonable — rational — moderate — logical — balanced — prudent — not excessive — exhibits good judgment — commonsensible — well founded — judicious — levelheaded — fair — not extreme
In spite of the reality that what is reasonable to one person may be far from reasonable to another many organizations are required to maintain physician compensation that is “reasonable”.
The IRS “Intermediate Sanctions” regulations allow the IRS to levy additional taxes and fines on nonprofit organizations, their managers, and recipients of “excess benefits” should they determine that the presumption of reasonableness has not been met by the entity. If the entity meets the following three requirements the IRS may find the compensation paid to a disqualified person (i.e., physician earning greater then $100,000 in 2006) to have been established with rebuttable presumption of reasonableness,
- Compensation arrangement approved in advance by an authorized body of the entity, which is composed of individuals who do not have a conflict of interest concerning the transaction,
- Prior to making its determination, the authorized body obtained and relied upon appropriate data as to comparability, and
- The authorized body adequately and timely documented the basis for its determination concurrently with making that determination.
PLS Professional Associates can provide your organization with the comparative analysis and documentation necessary to satisfy these IRS requirements of rebuttable presumption.
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