{"id":17048,"date":"2024-10-21T19:45:06","date_gmt":"2024-10-22T00:45:06","guid":{"rendered":"https:\/\/www.sfw.cpa\/news-and-guides\/?p=17048"},"modified":"2024-10-21T14:45:07","modified_gmt":"2024-10-21T19:45:07","slug":"board-independence-is-about-more-than-avoiding-conflicts-of-interest","status":"publish","type":"post","link":"https:\/\/www.sfw.cpa\/news-and-guides\/board-independence-is-about-more-than-avoiding-conflicts-of-interest\/","title":{"rendered":"Board independence is about more than avoiding conflicts of interest"},"content":{"rendered":"

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Are your not-for-profit\u2019s board members independent? Your immediate response is probably, \u201cof course!\u201d But contrary to what many nonprofit leaders and staffers might think, director independence goes beyond avoiding conflicts of interest. In fact, the IRS has a four-part definition of independence. If a majority of your organization\u2019s board members don\u2019t meet all four criteria, the IRS, donors and other stakeholders could call your governance into question.<\/p>\n

4 criteria <\/strong><\/p>\n

The IRS stipulates a four-part definition of independence for members of 501(c)(3) boards. To be considered independent, your directors can\u2019t:<\/p>\n

    \n
  1. Be compensated as officers or employees of your organization or a related organization.<\/li>\n
  2. Receive more than $10,000 in compensation for work as independent contractors from your organization or a related organization during the tax year (excluding reasonable compensation for services provided as a board member).<\/li>\n
  3. Be involved in \u2014 or have close family members involved in \u2014 transactions with your organization that provide material financial benefits and that must be reported on Form\u00a0990, Schedule\u00a0L, \u201cTransactions with Interested Persons.\u201d<\/li>\n
  4. Be involved in \u2014 or have close family members involved in \u2014 a transaction with a taxable or tax-exempt related organization that must be reported on Schedule\u00a0L.<\/li>\n<\/ol>\n

    You\u2019re also required to disclose on Form\u00a0990 whether any of your current officers, directors, trustees or key employees had a family or business relationship with each other at any time during the tax\u00a0year.<\/p>\n

    Gathering information<\/strong><\/p>\n

    Your organization is expected to make a \u201creasonable effort\u201d to obtain information for Form\u00a0990 disclosures about independent directors\u2019 family and business relationships. You might, for example, distribute an annual questionnaire to your officers, directors, trustees and key employees asking for the relevant information.<\/p>\n

    It\u2019s important to note that board members can be considered independent even if they receive financial benefits as members of the group your organization serves. What\u2019s more, a religious exception may apply if a board member has taken a vow of poverty and belongs to a religious order that receives sponsorship or payments from your organization or a related organization \u2014 so long as the payments don\u2019t qualify as taxable income to that person.<\/p>\n

    Some nonindependent members are allowed<\/strong><\/p>\n

    Not all of your board members are required to be independent. For example, you may have on your board an employee or an individual who has lent your organization money.<\/p>\n

    But watchdog groups generally advise donors to support only organizations with a majority of independent directors. And some states (for example, California) mandate that at least half of a charitable board\u2019s members be independent. The IRS requires that at least 51% of a charitable board be made up of people with no familial relationship.<\/p>\n

    Avoiding conflicts<\/strong><\/p>\n

    To avoid improprieties (as well as the appearance<\/em> of improprieties), maintain a board composed of at least two-thirds independent members. Also make sure all members of your audit and compensation committees are independent and that independent members are represented on \u2014 or, better yet, make up a majority of \u2014 your governance and nominating committees. Contact us for details.<\/p>\n

    \u00a9 2024<\/em><\/p>\n

    <\/body>
    \n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"

    Are your not-for-profit\u2019s board members independent? Your immediate response is probably, \u201cof course!\u201d But contrary to what many nonprofit leaders and staffers might think, director independence goes beyond avoiding conflicts of interest. In fact, the IRS has a four-part definition of independence. If a majority of your organization\u2019s board members don\u2019t meet all four criteria, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,15],"tags":[8,11,12],"class_list":["post-17048","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-not-for-profit","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17048","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17048"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17048\/revisions"}],"predecessor-version":[{"id":17049,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17048\/revisions\/17049"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17048"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17048"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17048"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}