Operating Effectively 206: Dealing with Conflicts of Interest

What You'll Learn

What is a conflict of interest? What are the situations where your organization needs to protect itself from conflict transactions with a person or entity that is somehow related to your organization? This skills course introduces some basic principles regarding conflicts of interest, identify transactions where certain precautions need to be taken, as well as certain transactions you should/must avoid altogether, and gives you the tools to start crafting policies that will help you deal with potential conflicts of interest.

Lesson 1

Conflicts of Interest: Avoiding Common Mistakes

The directors of faith-based nonprofits have a duty of loyalty that requires them to put the organizations’ faith and mission ahead of personal interests, both in fact and in appearance. If the organization plans to enter a conflicted transaction, in which the organization will directly or indirectly compensate a person (such as a director or officer or a company owned by a director) who exercises authority or influence over the organization, special due diligence and approval is necessary. If the board does not conduct the required diligence, state and federal penalties may apply. These penalties include financial penalties, legal actions, and even the voidance of the transaction itself. Not all conflicted transactions are prohibited or improper, but all conflicted transactions must be carefully reviewed.

View Resource

Lesson 2

Introduction to Private Inurement and Private Benefit for Religious Nonprofit Leaders

Religious organizations must comply with federal tax laws prohibiting the use of a tax-exempt organization for the benefit of a private individual. The Internal Revenue Code (the “Code” or “IRC”) has an absolute prohibition against private inurement, which refers to transactions through which an insider gains financial advantage from a tax-exempt organization’s assets. The Code limits private benefit, financial or otherwise, to any individual, whether an insider or outside party, to benefits which are incidental to the tax-exempt organization’s activities. Organizations considering transactions with interested parties should conduct careful due diligence and document their choice and its basis. Consequences for violations of the prohibition and the restriction include fines and loss of tax-exempt status, as well as considerable reputational harm.

View Resource

Lesson 3

Excess Benefit Transactions: The Incentive for Compliance

Part II of a four-part overview of private inurement, private benefit, and excess benefit transactions. The first whitepaper in this series described the basics of private benefit and private inurement issues for tax-exempt organizations. This second whitepaper explains a specific type of private inurement issue, the excess benefit transaction (EBT). This whitepaper also describes how to avoid an EBT and what the consequences are if an EBT takes place.

View Resource

Lesson 4

Best Practices to Avoid Excess Benefit Transactions

Part III of a four-part overview of private inurement, private benefit, and excess benefit transactions. The first whitepaper in this series described the basics of private benefit and private inurement issues for tax-exempt organizations. The second whitepaper explained a specific type of private inurement issue, the excess benefit transaction (EBT). The second whitepaper also described how to avoid an EBT and what the consequences are if an EBT takes place. This third whitepaper provides best practices for avoiding excess benefit transactions: (1) using the rebuttable presumption of reasonableness; (2) avoiding automatic excess benefit transactions; and (3) being aware of exceptions to excess benefit transactions.

View Resource

Lesson 5

Responding to an Excess Benefit Transaction

Part IV of a four-part overview of private inurement, private benefit, and excess benefit transactions. The first whitepaper in this series described the basics of private benefit and private inurement issues for tax-exempt organizations. The second whitepaper explained excess benefit transactions (a specific type of private benefit issue) and their consequences. The third whitepaper described best practices for avoiding excess benefit transactions. This fourth and final whitepaper in the series outlines both what an organization’s leaders should do if they believe an excess benefit transaction occurred and what to expect in the resolution and reporting process.

View Resource

Lesson 6

View Resource

Lesson 7

View Resource

Lesson 8

View Resource

Lesson 9

View Resource

Lesson 10

View Resource

Lesson 11

View Resource

Lesson 12

View Resource

Lesson 13

View Resource

Lesson 14

View Resource