The IRS describes inurement as: “A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.”

A nonprofit is different from a for-profit organization because all the money of the nonprofit organization goes back into the organization to fulfill its mission.

Nonprofit organizations are established for the benefit of the community it serves, whether that be animals, children, at risk populations, etc. Founders of nonprofits are critical to the success of the nonprofit as they provide the guiding passion and day to day work needed to make the organization successful. Board of Directors are the “owners” of the organization providing the governance needed as the organization is developed and grows. The nonprofit is not meant for a founder or board member or staff or volunteer to gain a financial advantage for themselves. With this said, staff can get paid for the work they do for the organization as without paid staff the organization struggles to grow.

An example of inurement on the Board of Directors is when a director provides a service, let’s say accounting, and charges the organization for their service. Even if they offer it at a discount, they are still receiving a financial benefit from the organization.

The IRS highly recommends, pretty much requires, nonprofits have a Conflict of Interest Policy that helps the board evaluate inurement and record the process of determining of an inurement is occuring.

Inurement issues can cause serious consequences for a nonprofit. By always keeping the mission and the community you serve  your nonprofit can avoid IRS inurement compliance problems.

 

Want help with your Conflict of Interest Policy, tracking and navigating inurement policy violations or other nonprofit support?

 

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