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Intermediate Sanctions - Substantial Influence

A person who holds any of the following powers, responsibilities, or interests is considered to be in a position to exercise substantial influence over the affairs of the organization, regardless of title:

  • A voting member of the governing body
  • A person who has ultimate responsibility for implementing the decisions of the governing body or for supervising the management, administration, or operation of the organization
  • A person who has ultimate responsibility for managing the finances of the organization

If ultimate responsibility resides with two or more individuals who may exercise this responsibility together or individually, then each individual is in a position to exercise substantial influence.

Certain persons are considered as not being in a position to exercise substantial influence over the affairs of an applicable tax-exempt organization, such as

  • Section 501(c)(3) organizations
  • Section 501(c)(4) organizations with respect to transactions engaged in with other
    section 501(c)(4) organizations
  • Employees of an applicable tax-exempt organization who meet the definition of a highly compensated employee under Code section 414(q)(1)(B)(i), but who are not a disqualified person or a substantial contributor to the organization

Any other person may or may not be a disqualified person depending on all the relevant facts and circumstances. Facts and circumstances that tend to show a person has substantial influence over the affairs of an applicable tax-exempt organization include:

  • The person founded the organization
  • The person is a substantial contributor to the organization
  • The person’s compensation is based primarily on revenues derived from organization activities the person controls
  • The person has or shares authority to control or determine a substantial portion of the organization’s capital expenditures, operating budget, or compensation for employees
  • The person manages a discrete segment or activity of the organization that represents a substantial portion of its activities, assets, income, or expenses
  • The person owns a controlling interest in a corporation, partnership, or trust that is a disqualified person
  • The person is a non-stock organization controlled directly or indirectly by one or more disqualified persons

Facts and circumstances that tend to show a person does not have substantial influence over the affairs of an applicable tax-exempt organization include:

  • The person has taken a bona fide vow of poverty as an employee, agent, or on behalf of a religious organization
  • The person is an independent contractor whose sole relationship to the organization is providing professional advice and the person has no decision making authority and will derive no direct or indirect benefit from the transaction except for the customary fees for professional advice
  • The direct supervisor of the person is not a disqualified person
  • The person does not participate in any management decisions affecting the organization as a whole or affecting a discrete segment of the organization that represents a substantial portion of its activities, assets, income, or expenses of the organization, as compared to the organization as a whole
  • Any preferential treatment a person receives based on the size of the person’s donation is also offered to all other donors making comparable contributions and offered as a part of a solicitation intended to attract a substantial number of contributions

Where there are affiliated organizations, the determination of whether a person has substantial influence is made separately for each organization.

Page Last Reviewed or Updated: 05-Sep-2013