Download this Paper Open PDF in Browser

Intermediate Sanctions: Controlling the Tax-Exempt Organization Manager

37 Pages Posted: 31 Jul 2013  

Alex Ritchie

University of New Mexico School of Law


On August 4, 1988, the Department of the Treasury issued proposed "intermediate sanctions" regulations that allow the Internal Revenue Service to impose significant excise taxes on executives of tax-exempt organizations who receive compensation in excess of "reasonable" compensation or in excess of amounts that would ordinarily be paid for like services by like enterprises. Exempt organization theory holds that government provides a tax exemption to further social goals, but those goals are frustrated when management has conflicting incentives. In a for-profit entity, management and firm owners have conflicting goals when control is separated from ownership, but in a tax-exempt entity, owners are replaced by beneficiaries interested in the charitable goals of the organization. This note argues that, in contrast to the corporate for-profit goal of maximizing profits, the tax-exempt organization should seek to maximize public goods by maximizing expenditures on programs, which incentives the manager to increase revenues and decrease administrative costs. The new intermediate sanction regulations may tend to frustrate the goal of program expenditure maximization by promoting compensation comparisons with other organizations, ex ante evaluations of compensation reasonableness, and the occurrence of transaction costs to support reasonableness determinations.

Suggested Citation

Ritchie, Alex, Intermediate Sanctions: Controlling the Tax-Exempt Organization Manager. Virginia Tax Review, Vol. 18, No. 4, 1999. Available at SSRN:

Alex Ritchie (Contact Author)

University of New Mexico School of Law ( email )

1117 Stanford, N.E.
Albuquerque, NM 87131
United States

Paper statistics

Abstract Views