Organizations that are exempt from income tax under section 501(c)(3) of the Internal Revenue Code are supposed to be “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes.” I.R.C. § 501(c)(3). Historically, when an organization deviated from that standard, there was not a lot the IRS could do: Its choices were to revoke its exemption or chastise management. Ultimately, Congress developed “intermediate sanctions” that would punish bad behavior without interfering with the benefits that a particular exempt organization may provide to the public. Congress did this by enacting section 4958 of the Code, which imposes a tax on an “excess benefit transaction.” I.R.C.… Read More