IRS Releases Long-Awaited Report on Hospital Pay and Services

“Amounts reported appear high but also appear supported under current law,” the IRS said. “For some, there may be a disconnect between what, as members of the public, they might consider reasonable and what is permitted under the tax law.”

The IRS said nearly all hospitals in the study followed “important elements of” a set of federal rules in setting compensation. Those rules provide a series of steps — including the use of data to compare salaries earned by executives at similar charities and for-profit institutions — by which charities can establish that they have done everything possible to set a reasonable salary. Federal rules call that threshold a “rebuttable presumption” of reasonableness. Organizations that are found to pay excessive compensation are forced to pay fines, called excise taxes.