Final answer:
Excess benefit transaction refers to when a person's compensation is deemed in excess of the value of his or her services in a non-profit organization. The IRS closely monitors these transactions to ensure compliance.
Step-by-step explanation:
Excess benefit transaction refers to a situation where a person's compensation is deemed to be in excess of the value of his or her services in a non-profit organization. This typically occurs when a disqualified person, such as a board member or a key employee, receives excessive compensation or benefits.
For example, if a board member of a non-profit organization is being paid a salary that is significantly higher than what would be considered reasonable for their services, it may be classified as an excess benefit transaction.
The Internal Revenue Service (IRS) closely monitors excess benefit transactions to ensure that non-profit organizations are not providing excessive compensation or benefits to insiders. These transactions can result in severe penalties for both the organization and the disqualified person involved.