At our board meeting ,the question of compensation for board members arose. We are a B.C.(3) in Pennsylvania and all board members are volunteer. However, we require maintenance of our physical structure( a swimming pool, filter room, bath rooms and related structures). In an attempt to save costs, we ask any members with skills to contribute their expertise. We cannot cover all items and need to get outside contractors for some. But when the cost is too high, we have members with similar skills who contribute. The question is can we compensate these board members for their services, out of pocket expenses and time?
If they have a business that is a separate entity(incorporated or LLC) can we pay that entity in lieu of paying them directly.
I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations. The IRS allows for compensation for services to board members or officers as long as it is not more than reasonable. Starting on pdf page 10
of www.irs.gov/pub/irs-tege/eotopici93.pdf the IRS discusses many of the factors it would look at to decide whether compensation is reasonable.
Similarly, a 501(c)(3) organization may contract with companies to provide services.
A conflict of interest is present whenever a director, and in
some states an officer) or a close relative of that person has a
material personal interest in a proposed contract or transaction to
which the 501(c)(3) organization may be a party. Some confl icts do
not result in any illegality. We would need to look at the
decisions of the organization or the Directors to decide if their
actions are illegal. This forum is only for federal tax questions
regarding 501(c)(3) public charities as I have explained in my
The IRS has published at
---Start of Excerpt--
Where an exempt organization engages in a transaction with an
insider and there is a purpose to benefit the insider rather than
the organization, inurement occurs even though the transaction
ultimately proves profitable for the exempt organization. The test
is not ultimate profit or loss but whether, at every stage of the
transaction, those controlling the organization guarded its
interests and dealt with related parties at arm's-length.
---End of Excerpt--
--- Start of Excerpt ---
an organization may represent that services will be provided at a
significant discount to the organization. When an organization
contracts with interested board members, the circumstances may
demonstrate that the organization does not have a purpose to
benefit the insiders. Sales or services by the board members'
businesses to an organization at a significant discount, at or
below cost, would help to justify the selection based on the
economic benefit to the organization....Transactions at fair market
value with board members may be allowed. But the determination to
do business with a board member or other interested party with
control must be made by an independent disinterested board. It is
not unusual for a board member to offer his own business services
to the organization. However, if the board member is not selected
by a disinterested board, then a transaction that would provide
services even at low market rates is problematic.
---End of Excerpt---
www.irs.gov/pub/irs-tege/eotopicb96.pdf on pages 22-23
Generally, under state law, the interested director should
disclose to the Board the particular conflicts annually and before
any vote and then should not vote in the matter, but
I suggest you check your particular state's law as to the details.
You should also read Massachusetts law to see if they have any relevant provisions. http://goo.gl/KVXcK
is the Massachusetts Law for Corporations for
Charitable and Certain Other Purposes on the site of the
Massachusetts legislature. Section 6 of that chapter 180 indicates
that the chapter applies also to some religious corporations,
"Corporations organized under this chapter or corresponding
provisions of earlier laws exclusively for religious purposes..."
There are some specific sections in that chapter 180 but many of
the provisions of Chapter 155 apply to nonprofit corporation as
well as to other corporations as we see at
Harvey Mechanic, Attorney at Law -
P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.