Your organization’s tax-exempt status is one of the most valuable things you have. The IRS knows this, and they take very seriously how nonprofits handle situations where someone’s personal interests could get in the way of what’s best for the organization.
A conflict of interest policy is not just a box to check. It is one of the clearest signals to the IRS that your organization is being run with integrity. Without one, you are leaving your nonprofit exposed to scrutiny that can lead to penalties, revoked status, or reputational damage that takes years to repair.
The good news is that getting this right does not require a legal degree. What it requires is a clear, well-written policy that your board actually uses. This guide gives you three ready-to-use samples, ranging from simple to comprehensive, so you can pick what fits your organization best and put it to work immediately.
IRS Conflict of Interest Policy Samples
The samples below reflect different organizational sizes, governance styles, and levels of complexity. Each one is written to meet IRS expectations and can be adopted or adapted directly for your nonprofit.
1. Simple Conflict of Interest Policy (Best for Small Nonprofits)
CONFLICT OF INTEREST POLICY [Organization Name]
Purpose
This policy is intended to protect [Organization Name] (the “Organization”) when it is considering entering into a transaction or arrangement that might benefit the private interest of an officer, director, or key employee of the Organization.
Persons Covered
This policy applies to all directors, officers, and key employees of the Organization, collectively referred to as “Interested Persons.”
Duty to Disclose
Any Interested Person who has a direct or indirect financial interest in any proposed transaction or arrangement involving the Organization must promptly disclose the existence of the interest to the Board of Directors or a committee with board-delegated powers.
A financial interest exists if the person has, directly or indirectly:
- An ownership or investment interest in any entity with which the Organization has a transaction or arrangement
- A compensation arrangement with the Organization or with any entity or individual with which the Organization has a transaction or arrangement
- A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Organization is negotiating a transaction or arrangement
Conflict of Interest Determination
After disclosure of the financial interest and all material facts, and after discussion with the Interested Person, the Interested Person shall leave the board or committee meeting while the determination of a conflict of interest is discussed and voted upon. The remaining board or committee members shall decide if a conflict of interest exists.
Procedures
If a conflict of interest is determined to exist, the following steps shall apply:
- The Interested Person may make a presentation at the meeting before the discussion and vote
- The Interested Person shall not participate in the final deliberation or vote
- The chairperson of the board or committee shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement
- The Organization shall determine whether the transaction or arrangement is in the Organization’s best interest, for its own benefit, and whether it is fair and reasonable
Compensation
A voting member of the board who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member’s compensation.
Annual Statements
Each director, principal officer, and key employee shall annually sign a statement affirming that he or she:
- Has received a copy of this conflict of interest policy
- Has read and understood the policy
- Has agreed to comply with the policy
- Understands that the Organization is a charitable organization and that in order to maintain its federal tax exemption it must engage primarily in activities that accomplish one or more of its tax-exempt purposes
Records of Proceedings
The minutes of the board and all committees with board-delegated powers shall contain:
- The names of the persons who disclosed or otherwise were found to have a financial interest in connection with an actual or possible conflict of interest
- The nature of the financial interest
- Any action taken to determine whether a conflict of interest was present
- The board’s or committee’s decision as to whether a conflict of interest in fact existed
- The names of the persons who were present for discussions and votes relating to the transaction or arrangement, the content of the discussion including any alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection with the proceedings
Violations
If the board or committee has reasonable cause to believe that an Interested Person has failed to disclose actual or possible conflicts of interest, it shall inform the person of the basis for such belief and afford the person an opportunity to explain the alleged failure to disclose. If the board or committee determines that the person has failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action.
2. Intermediate Conflict of Interest Policy (Best for Mid-Sized Nonprofits)
CONFLICT OF INTEREST POLICY [Organization Name] Adopted by the Board of Directors on [Date]
Article I: Purpose
The mission of [Organization Name] (the “Organization”) depends on the public’s trust. This policy is designed to protect that trust by ensuring that decisions made on behalf of the Organization reflect its charitable mission rather than the personal or financial interests of any individual affiliated with it.
This policy is intended to supplement, but not replace, any applicable state and federal laws governing conflicts of interest for nonprofit and charitable organizations.
Article II: Definitions
2.1 Interested Person
Any director, principal officer, or member of a committee with board-delegated powers who has a direct or indirect financial interest, as defined below, is an Interested Person.
2.2 Financial Interest
A person has a financial interest if the person has, directly or indirectly:
- An ownership or investment interest in any entity with which the Organization has a transaction or arrangement
- A compensation arrangement with the Organization or with any entity or individual with which the Organization has a transaction or arrangement or is negotiating such a transaction or arrangement
- A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Organization is negotiating a transaction or arrangement
A financial interest is not necessarily a conflict of interest. A person who has a financial interest may have a conflict of interest only if the appropriate board or committee decides that a conflict of interest exists, in accordance with this policy.
2.3 Family Members
For purposes of this policy, “family members” includes a spouse, parent, sibling, child, or the spouse of any of these individuals.
Article III: Procedures
3.1 Duty to Disclose
In connection with any actual or possible conflict of interest, an Interested Person must disclose the existence of the financial interest and be given the opportunity to disclose all material facts to the directors and members of committees with board-delegated powers considering the proposed transaction or arrangement.
3.2 Recusal from Discussion and Vote
After disclosure of the financial interest and all material facts, and after any discussion with the Interested Person, the Interested Person shall leave the board or committee meeting while the determination of a conflict of interest and the vote on the transaction or arrangement are discussed and voted upon. The chairperson of the board or committee shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement.
3.3 Determining Whether a Conflict of Interest Exists
The remaining board or committee members shall decide if a conflict of interest exists. The board or committee shall determine by a majority vote of the disinterested directors whether the transaction or arrangement is in the Organization’s best interest, for its own benefit, and whether it is fair and reasonable. In conformity with the above determination, it shall make its decision as to whether to enter into the transaction or arrangement.
Article IV: Compensation Decisions
4.1 Board Members Who Receive Compensation
A voting member of the board of directors who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member’s compensation. However, a voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization for services may provide information to such committee regarding compensation.
4.2 Non-duplication of Compensation Review
No voting member of the governing board or any committee whose jurisdiction includes compensation matters shall attempt to influence the Organization’s compensation decisions in a way that results in a benefit to themselves.
Article V: Annual Disclosure Requirements
5.1 Annual Statement
Each director, principal officer, and member of a committee with board-delegated powers shall annually sign a statement which affirms such person:
- Has received a copy of this conflict of interest policy
- Has read and understands the policy
- Has agreed to comply with the policy
- Understands that [Organization Name] is a charitable organization and that in order to maintain its federal tax exemption it must engage primarily in activities which accomplish one or more of its tax-exempt purposes
5.2 Disclosure Statement
In connection with any actual or possible conflict of interest, an Interested Person shall disclose all facts relevant to the Organization’s consideration of the proposed transaction or arrangement in question, including the nature of the conflict, the financial interest involved, and any proposed resolution.
Article VI: Records of Proceedings
The minutes of the board and all committees with board-delegated powers shall contain:
- The names of all persons who disclosed or were otherwise found to have a financial interest in connection with an actual or possible conflict of interest
- The nature of the financial interest
- Any action taken to determine whether a conflict of interest was present, and the board’s or committee’s decision
- The names of the persons who were present for discussions and votes relating to the transaction or arrangement
- The content of the discussion, including any alternatives considered
- A record of any votes taken in connection with the proceedings
Article VII: Violations
7.1 Failure to Disclose
If the board or committee has reasonable cause to believe that an Interested Person has failed to disclose actual or possible conflicts of interest, it shall inform the Interested Person of the basis for such belief and afford the Interested Person an opportunity to explain the alleged failure to disclose.
7.2 Corrective Action
If, after hearing the Interested Person’s response and making further investigation as warranted by the circumstances, the board or committee determines the Interested Person has failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action, including, as warranted, removal from the board or committee.
Article VIII: Periodic Review
To ensure the Organization operates in a manner consistent with charitable purposes and does not engage in activities that could jeopardize its tax-exempt status, periodic reviews shall be conducted. The periodic reviews shall, at a minimum, include the following subjects:
- Whether compensation arrangements and benefits are reasonable, based on competent survey information, and the result of arm’s length bargaining
- Whether partnership and joint venture arrangements and arrangements with management companies conform to the Organization’s written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further charitable purposes, and do not result in inurement, impermissible private benefit, or in an excess benefit transaction
3. Comprehensive Conflict of Interest Policy (Best for Large Nonprofits and Foundations)
CONFLICT OF INTEREST POLICY [Organization Name] Board Approved: [Date] | Effective: [Date] | Review Cycle: Annual
Section 1: Statement of Purpose and Scope
[Organization Name] (the “Organization”) is committed to operating with the highest standards of integrity, accountability, and transparency. This Conflict of Interest Policy (the “Policy”) is established to protect the Organization’s interests and to preserve public confidence in the Organization by providing clear standards and procedures for identifying, disclosing, and resolving conflicts of interest.
This Policy applies to all members of the Board of Directors, officers, committee members with board-delegated authority, and key employees (collectively, “Covered Persons”). It is designed to comply with the requirements set forth in Internal Revenue Service Form 990 and to reflect best practices for tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code.
Section 2: Definitions
2.1 Conflict of Interest
A conflict of interest arises when a Covered Person has a personal, financial, or professional interest that could influence or appear to influence their decisions on behalf of the Organization.
2.2 Interested Person
An Interested Person is any Covered Person who has a direct or indirect financial interest, family relationship, or personal relationship that may create a conflict of interest with respect to a matter under consideration by the Organization.
2.3 Financial Interest
A financial interest exists when a Covered Person has, directly or indirectly through a family member or affiliated entity:
- Ownership or investment interest in any entity with which the Organization has or is considering a transaction or arrangement
- A compensation arrangement with the Organization or with any entity or individual with which the Organization has or is considering a transaction or arrangement
- A loan relationship or creditor/debtor relationship with any entity involved in a proposed transaction
- Significant personal indebtedness to, or from, any entity with which the Organization is considering a transaction
2.4 Family Member
For the purposes of this Policy, “family member” includes a spouse or domestic partner, parent, child, sibling, grandparent, grandchild, or any individual sharing a household with a Covered Person, as well as the spouses or domestic partners of any of the foregoing.
2.5 Arm’s Length Transaction
A transaction entered into on terms and conditions that reflect normal marketplace conditions, without influence from personal relationships or undisclosed interests.
Section 3: Disclosure Requirements
3.1 Annual Disclosure
All Covered Persons shall complete and submit an Annual Conflict of Interest Disclosure Form at the beginning of each fiscal year and upon their initial appointment or election to their role. This form shall require each Covered Person to:
- Identify any financial interests, family relationships, or personal relationships that could constitute a conflict of interest
- Disclose any outside employment, board memberships, or advisory roles with organizations that conduct business with, or compete with, the Organization
- Certify that they have read, understood, and agree to comply with this Policy
3.2 Duty of Ongoing Disclosure
In addition to annual disclosure, each Covered Person has a continuing obligation to promptly disclose any new actual or potential conflict of interest that arises during the year. Such disclosure shall be made to the Board Chair or the Chair of the Audit Committee before the matter in question is discussed or voted upon.
3.3 Third-Party Relationships
Covered Persons shall disclose any material business relationship, financial arrangement, or personal relationship with any third-party vendor, contractor, donor, grantee, or partner with whom the Organization has dealings.
Section 4: Procedures for Managing Conflicts of Interest
4.1 Disclosure Prior to Discussion
When any matter comes before the Board or a committee that involves an actual or potential conflict of interest, the Interested Person shall:
- Promptly disclose the nature of the financial or personal interest before any discussion of the matter begins
- Provide all material facts relevant to the board or committee’s consideration of the proposed transaction or arrangement
4.2 Recusal
After disclosure, the Interested Person shall:
- Refrain from participating in deliberations on the matter
- Leave the room during the discussion and any vote, unless the board or committee requests factual information from the Interested Person, in which case the Interested Person shall provide the requested information and then withdraw
- Not attempt to influence the deliberations or vote of other board or committee members
4.3 Review by Disinterested Members
The remaining disinterested members of the board or committee shall:
- Determine whether a conflict of interest exists
- Investigate whether alternative transactions or arrangements are available that would not give rise to a conflict
- Determine whether the proposed transaction or arrangement is in the best interests of the Organization, is fair and reasonable, and advances its charitable mission
- Document the process and reasoning in the meeting minutes
4.4 Approval Standard
A transaction or arrangement in which a Covered Person has a financial interest may be approved only if the board or committee determines by majority vote that:
- The transaction or arrangement is fair to the Organization
- The Organization could not reasonably obtain a more advantageous transaction or arrangement with reasonable efforts under the circumstances
- Entering into the transaction or arrangement is consistent with the Organization’s charitable purposes
Section 5: Compensation Matters
5.1 Board Members Receiving Compensation
No voting member of the Board who receives direct or indirect compensation from the Organization for services may vote on matters related to that member’s own compensation. This restriction applies to all forms of compensation, including salaries, consulting fees, honoraria, and deferred compensation arrangements.
5.2 Rebuttable Presumption of Reasonableness
To establish a rebuttable presumption of reasonableness for compensation paid to Covered Persons, the Board or Compensation Committee shall:
- Rely on appropriate data from comparable organizations when setting compensation
- Document the basis for compensation decisions in the meeting minutes
- Ensure that the decision is made by disinterested persons only
Section 6: Loans and Financial Arrangements
The Organization shall not make any loan or advance to any director, officer, or key employee. No Covered Person shall solicit or accept any gift, loan, favor, or service from any vendor, contractor, or other party doing business with or seeking to do business with the Organization if doing so could compromise or appear to compromise the Covered Person’s judgment or loyalty to the Organization.
Section 7: Records and Documentation
The Secretary of the Board shall ensure that the minutes of all Board and committee meetings accurately reflect:
- The identity of all persons who disclosed or were found to have a financial interest in connection with a matter under discussion
- The nature and extent of the disclosed interest
- All steps taken to determine the existence of a conflict of interest
- The substance of the board’s or committee’s deliberations, including any alternatives considered
- The outcome of any votes taken, recorded separately for each Interested Person’s recusal
- A copy of any Annual Disclosure Forms or supplemental disclosures related to the matter
Section 8: Violations and Enforcement
8.1 Investigation of Potential Violations
If the Board or any committee member has reasonable cause to believe that a Covered Person has failed to disclose a conflict of interest or has violated this Policy, the Board Chair shall:
- Notify the Covered Person in writing of the specific concern
- Provide the Covered Person with an opportunity to respond
- Conduct such further investigation as the circumstances warrant
8.2 Consequences of Violations
If the Board determines that a Covered Person has violated this Policy, it may take any combination of the following actions:
- Issue a formal written warning
- Require additional disclosure or recusal in future matters
- Remove the person from a particular committee or role
- Recommend removal from the Board of Directors
- Refer the matter to legal counsel if the violation may involve a breach of fiduciary duty or other legal obligation
Section 9: Periodic Policy Review
The Board of Directors shall review this Policy at least once every two years. The review shall assess:
- Whether the Policy continues to meet IRS requirements and reflect current best practices for 501(c)(3) organizations
- Whether compensation and benefit arrangements are reasonable and the result of arm’s length negotiations
- Whether any transactions with related parties reflect fair market value and serve the Organization’s charitable mission
Section 10: Acknowledgment
Each Covered Person shall sign the following acknowledgment upon adoption of this Policy and annually thereafter:
I have received and read the Conflict of Interest Policy of [Organization Name]. I understand my obligations under this Policy and agree to comply with its requirements in full. I will promptly disclose any actual or potential conflict of interest that arises during my service and will recuse myself from all related deliberations and votes as required.
Signature: _______________________________
Printed Name: _______________________________
Title/Role: _______________________________
Date: _______________________________
Wrapping Up
A conflict of interest policy is one of the simplest and most powerful tools your nonprofit has. The IRS looks for it, your donors expect it, and your board needs it to make decisions with confidence. The samples above give you a strong starting point, whether your organization is just getting off the ground or has been operating for decades.
Pick the version that fits your size and complexity. Share it with your board, get it formally adopted, and make annual disclosure part of your governance routine. That consistency is what turns a policy on paper into a culture of accountability.