Roger Anderson, national field director for Madison, Wis.-based nonprofit ministry InterVarsity Christian Fellowship/USA, in June had just completed his second sabbatical when he wrote to EBN.

"[InterVarsity] permits a restorative sabbatical, which might include rest, counseling, working with a spiritual director or reading. Recently, this has been challenged as possibly falling under the legal concern of personal inurement' and thus suspect."

We decided to investigate: Could nonprofit employers really be running afoul of the law by offering sabbaticals as an employee benefit?

Quite possibly, according to benefits attorney Peter Marathas, a partner at Boston's Kirkpatrick & Lockhart Nicholson Graham.

"Nonprofit employers have to be sensitive about setting compensation," Marathas says. "And when they're considering all parts of compensation, they shouldn't ignore sabbaticals."

The high price of R & R

The primary concern for nonprofit employers regarding sabbaticals, says Marathas, is possibly violating intermediate sanctions - newly tightened Internal Revenue Service regulations that preclude employees' personal inurement (or personal gain) from the activities of a nonprofit group.

"Previously, the IRS could only revoke an employer's nonprofit status - which truly only harms the people the organization serves," he says. "So Congress came up with intermediate sanctions to place penalties on individuals who personally profit."

A position paper on compensation-based inurement by the Association of Fundraising Professionals, based in Alexandria, Va., does not specifically address sabbaticals, yet states: "There is an inherent conflict of interest between charities founded without intent of profit or private benefit, and employees whose compensation and primary motivation are based on personal financial gain.

"AFP believes that a commission or percentage-based compensation breaches the no-inurement principle."

So, for the purpose of law, are sabbaticals considered part of compensation?

That's the million-dollar question, Marathas says. And for employers with the wrong answer, the price is just as high.

Violating intermediate sanctions regulations can cost individuals a tax penalty of 25% of the benefit amount. Further, "if the situation is not corrected within a reasonable period, the IRS can tack on an additional 200% penalty," Marathas explains. Finally, the IRS can levy a $10,000 penalty on each of an organization's trustees, and strip the group of its nonprofit tax-exempt status.

Proceeding with caution

Although InterVarsity's Anderson tells EBN his employer has continued to offer employee sabbaticals, it requires sabbaticals to be of some benefit to the employer rather than the individual employee.

Additionally, other nonprofit organizations are educating staff regarding personal inurement. A January memo to all Pop Warner youth football organizations states: "The entire issue of personal inurement is being scrutinized much more closely by the IRS; therefore, we're trying to inform all of you, so you can protect your Pop Warner organization and your local volunteers." Attached was an updated statement of principles and ethical behavior guidelines.

"Nonprofit employers have to be careful," says Marathas. "Although I've never heard of a case [regarding sabbaticals being construed as personal inurement], in setting compensation for employees, employers have to be sensitive to these codes." - K.M.B.