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.

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.