According to a July 1 statement by Lois Lerner, director of Exempt Organizations at the IRS, the IRS is exploring how the initial contract exception might be affecting the use of comparable salary information when it comes to setting executive compensation. Lerner stated that the use of comparable nonprofit and for-profit salary information from similar organizations is allowed under IRS rules for establishing the reasonableness of compensation, but the question is in regards to what is similar. While IRS officials have said the salaries being compared must involve executives in similar-type organizations who are performing similar-type duties, the IRS also is now assessing whether the initial contract exception has figured into the setting of pay. The initial contract exception allows the rules on negotiations over salary to be “turned off” if the organization is in its first contract with a prospective hire. With regard to hospitals, the IRS stated in February when it released the findings of a tax-exempt hospital study that the initial contract exception might be revised if the IRS updates the 40-year-old community benefit standard tax-exempt hospitals must meet in order to retain their exemptions. IRS officials have expressed concern in a number of recent forums that the pay tax-exempt hospitals are giving their chief executives is being falsely increased by those organizations automatically looking to the highest paid salaries of other organizations to justify what they want to pay. Lerner stated that what the IRS is concerned about “is that for-profits often have ways of compensating people that not-for-profits don’t, and if those are rolled into the compensation, it’s skewed.”