Focus on Foundations: Conflicts of Interest

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Focus on Foundations: Conflicts of Interest
March 1, 2003
Area(s) of Practice:
Estate Planning & Administration, Tax Law

The IRS is increasingly interested in examining potential conflicts of interest of nonprofit officers and board members. The adoption of a conflicts of interest policy by the governing body of a foundation or other nonprofit organization will help demonstrate to the IRS that the organization is serving charitable purposes rather than personal interests. Conflicts of interest can arise when a transaction creates a possible conflict between the interests of a nonprofit organization and the personal interests of one or more of its directors, trustees or officers. A conflicts of interest policy generally requires (1) a director or trustee to disclose any possible conflicts of interest in a proposed transaction, (2) the interested director or trustee to abstain from voting or participating in any discussion concerning the transaction, and (3) the transaction to be in the best interest of the organization. It should be noted that the adoption of a conflicts of interest policy does not replace any of the applicable state or federal laws concerning conflicts of interest (e.g., the rule that private foundations may not enter into transactions with a "disqualified person"). The adoption of the policy should, however, help the organization to focus on these issues and cause the directors and officers to be more vigilant in identifying and dealing with conflicts.

If your organization is interested in considering and adopting such a policy (and we would encourage you to do so), you should contact your attorney for guidance in constructing the appropriate policy.