Compensation packages for senior officials of nonprofits are rarely limited to salary alone and the value of fringe benefits must be looked at in determining whether total compensation is reasonable.  It is also important to note that failure to correctly document and report a benefit may convert it to an “excess benefit transaction”, subject to excise tax penalties, even if the overall compensation package is “reasonable.”  Fringe benefits are an audit focus as noted in the IRS Audit Techniques Guides:

Because the tax treatment of fringe benefits can vary depending on the facts and circumstances under which they are provided, it may be helpful to follow a 3-Step analysis when examining a particular item an employer gives or makes available to an executive.

First, identify the particular fringe benefit and start with the assumption that its value will be taxable as compensation to the employee.

Second, check to see if there are any statutory provisions that exclude the fringe benefit from the executive’s gross income.

Third, value any portion of the benefit that is not excludable for inclusion in the executive’s gross income.  Fringe benefits are generally valued at the amount the employee would have to pay for the benefit in an arm’s length transaction.