Conflict of Interest Policy for 501(c)(3)

By Wayne Thomas

Tax exempt nonprofits serve to promote a particular public good. Sometimes, however, individuals involved with the organization may choose to use their position of authority to gain personal benefits at the expense of the nonprofit. This is referred to as a conflict of interest, and having a policy in place to properly handle a conflict when it occurs can help your organization maintain compliance with the Internal Revenue Service.

Tax exempt nonprofits serve to promote a particular public good. Sometimes, however, individuals involved with the organization may choose to use their position of authority to gain personal benefits at the expense of the nonprofit. This is referred to as a conflict of interest, and having a policy in place to properly handle a conflict when it occurs can help your organization maintain compliance with the Internal Revenue Service.

Handling Financial Interests

If your nonprofit has received a federal tax exemption under subchapter 501(c)(3) of the Internal Revenue Code, it is subject to ongoing oversight by the IRS. To maintain exempt status, the members of your organization must avoid conflicts of interest. An example might be if a director voted in favor of approving a contract for his private construction business. While you are not required to have a conflict of interest policy in place, this can be a helpful when applying for exempt status, and in guarding against any claims that a conflict exists. The policy might require that a member or officer fully disclose the conflict in advance and obtain consent from the board or abstain from voting on the issue.

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What Belongs in the Bylaws?

References

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Virginia Laws Regarding Nonprofit Organizations

In Virginia, nonprofit organizations are referred to as "nonstock corporations": no dividends may be paid to directors or officers of the corporation beyond reasonable compensation for their services. The formation and operation of all nonstock corporations is governed by the Virginia Nonstock Corporation Act, which provides specific rules with regard to naming the corporation, adopting bylaws and holding organizational meetings.

The Duties and Responsibilities of a Board in Dissolving a 501(c)(3)

The larger issues of a 501(c)(3) organization, such as whether to dissolve, are generally decided by the nonprofit entity's board of directors. As the chief decision-making body, the individuals serving on this board play a key role in dissolving the organization. In addition to executing the internal process to formally decide to dissolve, the board members are responsible for filing the requisite paperwork with state and federal agencies. The board must also distribute the organization’s assets to another nonprofit organization with a comparable mission to that of the dissolving entity.

Non-Profit Bylaws

The bylaws of a non-profit organization guide its directors, officers, and employees on how to conduct themselves and the business of the organization. If the non-profit wants to maintain its tax-exempt standing, these bylaws must be drafted subject to standards established by the tax code and applicable state law. Although bylaws may be amended, it is important that the rules are drafted well to ensure that the non-profit runs smoothly.

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