The United States Tax Court ruled that the wife of the founder of a medical missions charity had received an excess benefit from the charity subjecting her to a “first-tier” penalty of 25 percent of the amount of the excess benefit, and an additional “second-tier” tax of 200 percent of the excess since it had not been returned to the charity.
Note. It is important for church leaders to be familiar with this case since excess benefit transactions are common among churches and expose ministers and possibly others to significant penalties under section 4958 of the tax code. These penalties are assessed against the minister, not the church.
In 2000, a medical missions charity (the “charity”) applied to the Internal Revenue Service (IRS) for recognition of tax-exempt status. In its application, it described its exempt purpose as the operation of a clinic ...