Question

3. Medical, Inc., a § 501(c)(3) organization a public charity, sells property to its executive director for $125,000. The fair market value of the property is $175,000. The organization management participation in the transaction was not willful and reasonable cause exists for the management. Calculate the amount of the excise tax imposed under the intermediate sanctions provision †both first level and second level.

Answer 1

Intermediate sanctions are fines that are imposed when particular individuals associated with a tax-exempt organization receive compensation or benefits that exceed the value of services, goods, or donations they have provided the organization.

The amount of penality for each excess benefit transaction is 25 percent of the amount over the true value of the services or item.An additional 200 percent can be charged if the excess benefit is not corrected by a certain date.

The first level of tax = (175,000-125,000)*25% = $12500

The second level of tax= (175,000-125,000)*200% = $100,000

The two penalities on combined basis would amount to $ 112,500.