2 Ways to Avoid IRS Trouble with Your Nonprofit

Like most regulatory agencies, the IRS has priorities when it comes to evaluating your nonprofit’s Application for Tax-Exempt Status. There are two main concerns of the IRS when it comes to evaluating Tax-Exempt Status. These involve avoiding conflicts of interest and avoiding nonprofits that only benefit the directors or officers. Here are two questions to think about to help your nonprofit avoid IRS trouble.

The first area that to focus on relates to choosing your board members and officers. Board members work collectively with each other. Officers are individuals who are appointed for specific roles in the nonprofit. There are some relationships the IRS is concerned about when it comes to individuals serving on the board of directors. Avoid family relationships, business relationships, or people who are related to highly paid employees or business contractors. If you have a relationship with a board member that falls into one of these categories, you may need to be prepared to disclose the relationship to the IRS and in some instances, explain the nature of the relationship.

Another area of concern for the IRS is how your nonprofit chooses to pay people. The way that you structure your nonprofit as it relates to paying your employees is critical to avoid IRS trouble. Here are some things you may want to implement in order to pass IRS muster: create a conflict of interest policy, appoint a compensation committee, and have a written employment agreement that documents the agreed-upon terms for payment. If you’re not doing these, you’ll need to be prepared to explain to the IRS your process for paying staff, including how you will decide how much they will be paid, and how you will make sure pay is reasonable.

While these are the two main ways to avoid IRS trouble with your nonprofit, there are many more to consider when it comes to applying for the Application for Tax-Exempt Status. We can help. At Chisholm Law Firm, we have a 100% success rate for our clients. You can rest assured that your nonprofit is in the best hands and that we’ll get everything done right the first time. Call us today to schedule your free consultation.

And remember – it shouldn’t be this hard to be a superhero. 


CHISHOLM LAW FIRM Official Logo (2024)