Toolkit · Nonprofit

The Board Governance, Conflict of Interest, and Form 990 Toolkit

26 U.S.C. § 4958

Type
Toolkit
Jurisdiction
National
Date
2025-11-14
Topic
Nonprofit

This toolkit supplies the working documents for nonprofit governance. Tool 1 is a conflict-of-interest policy with an annual disclosure form, and Tool 2 is a compensation approval memorandum implementing the three-part process. Tool 3 is a board minutes template that records deliberation, and Tool 4 is a restricted gift agreement. Tool 5 is an annual return review checklist, and Tool 6 supplies whistleblower and record retention policies. Tool 7 is a governance audit worksheet, and Tool 8 is a compliance calendar. Tool 9 is a director onboarding packet list, and Tool 10 is a consolidated authority table.

The Board Governance, Conflict of Interest, and Form 990 Toolkit

Nonprofit > Governance, Board Duties, and Tax-Exempt Compliance | Published 14 November 2025 - Updated 9 July 2026 | UpLaw - uplaw.us

How to use this toolkit. Adopt Tools 1, 3, and 6 at one meeting; use Tool 2 every time compensation or an insider transaction is approved. Bracketed text is for completion. The guide supplies the doctrine and the checklist supplies the sequence.

TOOL 1 — CONFLICT OF INTEREST POLICY AND DISCLOSURE

Policy — adopted [date]

1. Purpose. To protect the organization's interests when considering a transaction that might benefit the private interest of a director, officer, or key employee, and to satisfy the requirements for the rebuttable presumption of reasonableness under 26 U.S.C. § 4958.

2. Interested person. Any director, officer, key employee, or member of a committee with board-delegated powers who has a direct or indirect financial interest, a family relationship with a party to a transaction, or a competing loyalty to another organization.

3. Duty to disclose. An interested person must disclose the existence and material facts of any actual or possible conflict promptly and in writing.

4. Procedure. The interested person may present information and answer questions, then leaves the meeting. The remaining disinterested members determine whether a conflict exists; if so, whether a more advantageous arrangement is reasonably attainable; and whether the proposed transaction is fair, reasonable, and in the organization's best interest. The interested person does not participate in the discussion or the vote.

5. Comparability data. For any transaction with an interested person and for all compensation, the disinterested members obtain and consider appropriate comparability data.

6. Documentation. The minutes record the names of persons present, the disclosure, the recusal, the comparability data considered, the alternatives considered, and the basis for the determination — recorded by the later of the next meeting or sixty days.

7. Annual disclosure. Every director, officer, and key employee signs an annual statement acknowledging the policy and disclosing interests.

8. Violations. The board investigates and takes appropriate corrective action.

Annual disclosure form

☐ Entities in which I or a family member holds a financial interest that transacts or may transact with the organization: [ ] ☐ Positions I or a family member holds with other organizations in the same field: [ ] ☐ Family members employed by or contracting with the organization: [ ] ☐ Gifts, loans, or benefits received from a party doing business with the organization: [ ] ☐ Any other interest that could reasonably be seen as a conflict: [ ] ☐ I have read the policy and will disclose any conflict arising during the year promptly. Signature / date: [ ]

TOOL 2 — COMPENSATION AND INSIDER TRANSACTION APPROVAL MEMORANDUM

Transaction: [compensation of the executive / lease from a director / contract with an insider's company] · Date approved: [ ]

1. The interested person and the nature of the interest. [Name, role, and interest.]

2. Disinterested body. The following members considered and approved the transaction, none of whom has a conflict of interest with respect to it: [names]. [Interested person] disclosed the interest, answered questions, and did not participate in the discussion or vote.

3. Terms. [Complete terms, including for compensation: salary, bonus, deferred compensation, retirement contributions, severance, insurance, housing, vehicle, memberships, companion travel, loans, and any personal use of organizational property.]

4. Comparability data considered. [Identify each source specifically: survey name, year, and the comparable set by budget, geography, and field; consultant report; or documented offers. Attach.]

5. Alternatives considered. [What else was available and why this was chosen.]

6. Determination. The disinterested members determined that the terms are fair, reasonable, and in the organization's best interest because [reasoning].

7. Documentation timing. Approved [date]; recorded in minutes [date] — within the later of the next meeting or sixty days.

8. Tax notes. [Whether 26 U.S.C. § 4960 applies to remuneration above the threshold; for a private foundation, whether the transaction is self-dealing under 26 U.S.C. § 4941 — in which case fairness is not a defense.]

📌 Complete this every time. It is the document that establishes the rebuttable presumption and protects the directors who approved the transaction.

TOOL 3 — BOARD MINUTES TEMPLATE

[Organization] — Board of Directors, [date], [location or platform]

Present: [names] · Absent: [names] · Also present: [staff, advisors] · Quorum: [confirmed]

For each agenda item, record four things:

1. Information considered. [What materials were provided and reviewed: financial statements for the period ended ___; the draft budget; the audit; counsel's memorandum of ___.]

2. Questions raised and answered. [Not verbatim — enough that a reader understands the board engaged. "Directors asked about the decline in unrestricted cash and were advised that ___."]

3. Recusals and disclosures. [Who disclosed an interest, who left the room, and when they returned.]

4. Decision and basis. [The resolution, and the reason: "the board approved ___ based on ___."]

Standing items to minute annually

☐ Review of the draft annual return before filing ☐ Financial reporting including cash position and restricted funds ☐ Executive evaluation completed ☐ Compensation determination with comparability data ☐ Conflict disclosures collected ☐ Policy review ☐ Insurance review

⚠️ Minutes that record only resolutions provide no evidence of deliberation. That absence forfeits the practical protection of the business judgment rule and the presumption of reasonableness.

TOOL 4 — RESTRICTED GIFT AGREEMENT

Donor: [ ] · Organization: [ ] · Date: [ ] · Amount or property: [ ]

1. Purpose restriction. The gift is restricted to [specific purpose], and the organization agrees to use it only for that purpose.

2. Time restriction. [If any: the funds may be expended over ___ years / not before ___.]

3. Endowment status. [Whether the gift is endowed, and if so the spending policy that will apply under the state prudent management of institutional funds act.]

4. Naming. [Any naming provision, and what happens if the named facility or program ends.]

5. Variance power. If the restricted purpose becomes impracticable, impossible, or inconsistent with the organization's mission, the board may apply the gift to a purpose as near as practicable to the original, after [notice to the donor / consultation with the donor's designee]. (Include this provision; without it, modification requires donor consent or a court proceeding.)

6. Reporting. The organization will report annually on the use of the gift.

7. Administrative costs. [Whether a stated percentage may be applied to administration.]

8. Enforcement. [Whether the donor reserves any right to enforce, noting that a reserved right may affect the gift's tax treatment.]

9. No goods or services. [Substantiation language for the donor's deduction under 26 U.S.C. § 170, stating whether anything was received in return.]

Signatures.

☐ Record every restriction on a schedule and account for restricted funds separately. ☐ Distinguish donor-restricted from board-designated funds in the financial statements.

TOOL 5 — ANNUAL RETURN REVIEW CHECKLIST

Review the draft at a board meeting and minute the review.

☐ Filing deadline calendared, with a named primary and backup owner ☐ Confirmed that prior years were actually filed — three consecutive years of non-filing revokes exemption automatically ☐ Program accomplishments describe what the organization actually did ☐ Governance section: every policy reported as adopted is actually followed and documented ☐ Board independence reported accurately ☐ Compensation section matches the approved terms in Tool 2, including all benefits ☐ Related-party transactions all went through the Tool 1 process ☐ Public support computation reviewed; classification risk noted ☐ Unrelated business activity identified and reported ☐ Restricted net assets consistent with the restricted funds schedule ☐ Fundraising expenses and methods reported accurately ☐ Foreign activity and grants reported where applicable ☐ Confirmed the public inspection copy is available on request, per 26 U.S.C. § 6104 ☐ Penalties for late filing noted at 26 U.S.C. § 6652; filing obligation at 26 U.S.C. § 6033

📌 Assume every number will be read by a reporter, a funder, and a competitor.

TOOL 6 — WHISTLEBLOWER AND RECORD RETENTION POLICIES

Whistleblower policy

1. Any director, officer, employee, or volunteer may report a suspected violation of law or policy, including financial impropriety, without fear of retaliation. 2. Reports may be made to [named officer] or, where the concern involves that person, to [board chair or committee chair] directly. 3. Reports may be made anonymously through [channel]. 4. The organization will investigate promptly and confidentially to the extent practicable. 5. Retaliation against a reporter is prohibited and is itself a violation of this policy. 6. The board receives a report of all complaints and their disposition at least annually.

Record retention policy

Category Retention
Articles, bylaws, determination letter, exemption application Permanent
Board and committee minutes Permanent
Annual returns and audited financial statements Permanent
Conflict disclosures and compensation determinations Permanent
Restricted gift agreements Permanent
General ledgers and accounting records [7] years
Payroll and employment records [7] years after separation
Contracts [7] years after expiration
Grant records [7] years after final report
Correspondence of legal significance [7] years

☐ Suspend destruction immediately on notice of any investigation, audit, or litigation.

TOOL 7 — GOVERNANCE AUDIT WORKSHEET

Item Evidence available Finding Remediation Owner Due
Returns filed for all years [ ] [ ] [ ] [ ] [ ]
Conflict disclosures on file, current year [ ] [ ] [ ] [ ] [ ]
Compensation approved with comparability data [ ] [ ] [ ] [ ] [ ]
Insider transactions through the conflict process [ ] [ ] [ ] [ ] [ ]
Written executive evaluation, current [ ] [ ] [ ] [ ] [ ]
Restricted funds schedule reconciled [ ] [ ] [ ] [ ] [ ]
Minutes record deliberation [ ] [ ] [ ] [ ] [ ]
Solicitation registrations current, all states [ ] [ ] [ ] [ ] [ ]
Payroll taxes current [ ] [ ] [ ] [ ] [ ]
Public support test reviewed [ ] [ ] [ ] [ ] [ ]
Unrelated business activity reviewed [ ] [ ] [ ] [ ] [ ]
Insurance reviewed, policy read [ ] [ ] [ ] [ ] [ ]
Policies adopted and used [ ] [ ] [ ] [ ] [ ]
Foundation excise obligations met, if applicable [ ] [ ] [ ] [ ] [ ]

TOOL 8 — COMPLIANCE CALENDAR

Recurring item Frequency Authority Owner
Annual return Annual 26 U.S.C. § 6033 [ ]
State corporate annual report Annual state law [ ]
Charitable solicitation renewals Annual, per state state law [ ]
Conflict disclosures Annual Tool 1 [ ]
Compensation review Annual 26 U.S.C. § 4958 [ ]
Executive evaluation Annual board policy [ ]
Audit or review Annual state law / funders [ ]
Public support computation Annual 26 U.S.C. § 509 [ ]
Unrelated income review Annual 26 U.S.C. § 511 [ ]
Foundation distributions and excise filings Annual 26 U.S.C. § 4942 [ ]
Insurance renewal and review Annual — [ ]
Policy review Annual — [ ]
Payroll tax deposits Per schedule — [ ]

TOOL 9 — DIRECTOR ONBOARDING PACKET

☐ Articles, bylaws, and determination letter ☐ Last three annual returns and current financial statements ☐ Current budget with year-to-date actuals ☐ Strategic plan and program descriptions ☐ All adopted policies, with the Tool 1 disclosure form for immediate completion ☐ Board and committee rosters, terms, and charters ☐ Minutes for the preceding year ☐ Restricted funds schedule ☐ Insurance summary and the directors and officers policy itself ☐ A written statement of the three fiduciary duties and of personal exposure, noting the limits of volunteer protection under 42 U.S.C. § 14503 ☐ Meetings with the executive and the board chair ☐ Meeting calendar and written expectations for attendance and preparation

TOOL 10 — AUTHORITY TABLE

Provision Subject
26 U.S.C. § 170 Charitable contribution deduction
26 U.S.C. § 501 Exemption and its conditions
26 U.S.C. § 502 Feeder organizations
26 U.S.C. § 503 Prohibited transactions
26 U.S.C. § 504 Status after substantial lobbying
26 U.S.C. § 507 Termination of private foundation status
26 U.S.C. § 508 Notice requirements
26 U.S.C. § 509 Private foundation defined; public charity tests
26 U.S.C. § 511 Tax on unrelated business income
26 U.S.C. § 512 Unrelated taxable income defined
26 U.S.C. § 513 Unrelated trade or business
26 U.S.C. § 514 Debt-financed income
26 U.S.C. § 4940 Excise tax on net investment income
26 U.S.C. § 4941 Self-dealing
26 U.S.C. § 4942 Minimum distributions
26 U.S.C. § 4943 Excess business holdings
26 U.S.C. § 4944 Jeopardizing investments
26 U.S.C. § 4945 Taxable expenditures
26 U.S.C. § 4958 Excess benefit transactions
26 U.S.C. § 4960 Excise tax on excess remuneration
26 U.S.C. § 4966 Donor advised fund taxable distributions
26 U.S.C. § 4967 Prohibited benefits
26 U.S.C. § 6033 Annual information returns
26 U.S.C. § 6104 Public inspection
26 U.S.C. § 6652 Failure to file penalties
26 U.S.C. § 7428 Declaratory judgment on status
42 U.S.C. § 14501 Volunteer protection findings
42 U.S.C. § 14503 Limitation on volunteer liability
42 U.S.C. § 14505 Definitions
26 C.F.R. Part 1 Income tax regulations
26 C.F.R. Part 53 Foundation excise tax regulations
26 C.F.R. Part 301 Procedure and administration
Bob Jones University v. United States Public policy limits on exemption
Regan v. Taxation With Representation Lobbying limitation upheld
Walz v. Tax Commission Religious property tax exemption
Hernandez v. Commissioner Contributions versus purchases
United States v. American Bar Endowment Quid pro quo analysis
Camps Newfound/Owatonna v. Town of Harrison Dormant Commerce Clause and exemptions
NAACP v. Alabama Associational privacy and donor disclosure
Village of Schaumburg v. Citizens for a Better Environment Fundraising cost limits invalid
Riley v. National Federation of the Blind Percentage-based fundraising rules invalid
Illinois ex rel. Madigan v. Telemarketing Associates Fraud actions remain available
Citizens United v. FEC Organizational political speech

Closing note

Adopt Tools 1, 3, and 6 at one meeting. Use Tool 2 every time. Run Tool 7 once a year. That is the entire program, and its absence explains nearly every governance failure in the sector.

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