Contract Option For Eo Executive Compensation What Is It...

ISSUE: Issue #1: Initial contract exception for EO executive compensation – what is it generally, and what are the parameters? Issue #2: How does 990 Schedule J define â€Å"key employee?† Issue #3: What are the 33 principles of good governance listed by the independent section? Issue #4: Summarize General Information Letter 2002-21. CONCLUSION: Issue #1: The initial contract exception provides an exception from the excise tax imposes upon excess benefit transactions between disqualified persons and a tax-exempt organizations. Issue #2: A â€Å"key employee† is general someone who has certain responsibilities and receives over $150,000 in compensation from the organization and any related organization. (See below for complete explanation) Issue†¦show more content†¦Ã¢â‚¬ ¢ â€Å"disqualified person† – any person in a position to exercise substantial influence over the affairs of the organization in the past five years, any family member of a disqualified person, and any entity controlled (35% or more voting power) by a disqualified person. The â€Å"Initial Contract Exception† provides that the excise tax does not apply to fixed payment made by an organization to a disqualified person pursuant to an initial contract. †¢ â€Å"initial contract† – a binding written contract between the organization and a person who was not a disqualified person immediately before entering the contract. o This does not apply if the contract can be terminated or cancelled by the organization without the disqualified person’s consent and there is no substantial penalty to the organization for the cancellation. o If a material change is made to the initial contract it will be treated as a new contract. †¢ â€Å"fixed payment† - an amount of cash or other property specified in the contract, or determined by a fixed formula specified in the contract, that is paid or transferred in exchange for the provision of specified services or property. †¢ This exception does not apply in a year unless the disqualified person substantially performs his or her obligations under the contract. Issue #2 – â€Å"key employee† definition To be considered a key employee, under Form 990, all the following four test/conditions must be met: (1) Employee is