The Tax Cuts and Jobs Act of 2017 (“TCJA”) reformed charity executive compensation for the first time in decades, introducing an across-the-board excise tax on compensation over $1 million.1 Its enactment represents a significant step toward securing accountability for the use of the charitable tax exemption under Section 501(c)(3) of the Internal Revenue Code. These organizations receive preferential tax treatment to subsidize their provision of socially beneficial outputs that would otherwise be undersupplied. Overcompensation of charity executives subverts this purpose by diverting those subsidies for private gain and undermining public confidence in the charitable sector.

With the enactment of the TCJA, federal tax law now offers three mechanisms to constrain charity executive compensation. This Article examines each mechanism with regard to its metric for gauging appropriate compensation and its enforceability. The first mechanism is mandatory public disclosure of compensation arrangements, which in theory facilitates donor-imposed accountability. In practice, however, donors seldom have adequate information, incentives, and market power to police compensation. The second mechanism is regulatory enforcement against individual charities that overcompensate executives. This tool relies on weak metrics for appropriate compensation and resource-intensive investigations. The third mechanism is the TCJA’s blanket excise tax on the most generous compensation packages. This is a potentially effective and easily administered tool, but it too applies an arbitrary metric for appropriate compensation. Together, these mechanisms provide some piecemeal accountability but are poorly tailored to the goals of the charitable tax exemption.