Nonprofit Law/501 c3


I would like to know if you pay salary plus commission do you jeapordize your 501 c3 status/licensure.  If not ... How can one legally pay a salary plus comission to an on staff fund raising employee / or consultant.

 The IRS does not allow 501(c)(3) organizations to give someone
more compensation than what  is reasonable. Starting on pdf page 10
of the IRS discusses many
of the factors it would look at to decide whether a salary is

Commissions may be ok, but it will depend upon the amount.

A revenue-sharing arrangement may be an excess benefit transaction
if it permits a disqualified person to receive additional
compensation without providing proportional benefits that
contribute to the charitable organization's acomplishment of its
exempt purpose. This was the standard under the proposed
regulations (Prop.Reg. 53.4958-6) that were not finalized but
which are being used anyway by the IRS as reported by Attorney
Bruce Hopkins on page 208 of "The Law of Fundraising"

---Start of Excerpt--
For these reasons, the Service has nonacquiesced to the holding in
World Family Corporation v. Commissioner, 81 T.C. 958 (1983), that
permitted a contingency fee for the organization's president of up
to 20% of the funds he raised. The court found the contingency fee
to be reasonable because all fundraisers of the organization, and
not merely insiders, were eligible to receive percentage fees. The
court reasoned that the commissions were based on services rendered
in the sense that they were contingent upon success in procuring
funds. In reaching its conclusion, the court distinguished
Gemological Institute of America v. Commissioner, 212 F. 2d 205
(9th Cir. 1954), because the contingent fee in Gemological
Institute was 50%, and thus "clearly unreasonable." The court also
distinguished cases such as Founding Church of Scientology v. U.S.,
412 F. 2d 1197 (Ct. Cl. 1969), where the percentage arrangement was
not tied to services rendered.
---End of Excerpt-- on page 5

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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