Legal Question in Tax Law in Texas

Re: Incentive Pay for Employees in Nonprofit setting

You're asking HR?!? Try asking either the CPA who advises the company on its non-profit accounting issues, or your regular health-care lawyer (who may have to ask his tax partner). This isn't even vaguely within the competence of HR managers.

The buzz-word on this topic is "private inurement" which, if applicable, can indeed imperil the tax-exempt status; however, I very much doubt that your professionals will find a private inurement problem based upon your laconic statement of your idea. And they can certainly advise you on a way to implement gain-sharing, which is by no means prohibited by any bright-line rule or regulation.

I really don't feel comfortable giving any more detailed answer since your company undoubtedly already has counsel, and the only advice that I will give is to use your present counsel for this kind of inquiry. As outside counsel to a hospital group, my firm would always prefer to be asked in advance rather than after a problem has been created because of someone in management who acts without consulting us.

Best wishes,

LDWG