How to Report Salaries and Conflicts of Interest for Your Nonprofit
The IRS revises its nonprofit forms from time to time. In the past few years, Form 1023 has been revised to include more questions about staff salary levels, board member compensation, and business and family relationships of board members and staff.
If you pay or plan to pay any staff member or consultant more than $50,000 per year, you need to report this fact. If you compensate or plan to compensate members of your board, you also have to share that information on Form 1023.
If you plan to compensate employees, directors, or consultants with non-fixed payments, that is, bonuses or revenue-based compensation, be prepared to describe these arrangements in detail.
You're also asked whether the organization has a conflict of interest policy and whether compensation has or will be set by comparing salaries of your staff to salaries of similar organizations. Although the IRS says these practices aren't required to get a tax exemption, they are recommended.
The instructions for Form 1023 contain a sample conflict of interest policy statement. Consider having your board adopt a conflict of interest policy based on the IRS model.
Part V of the application stretches over two pages and is clearly a reaction to increased public and legislative concern about financial abuse and self-dealing in both the nonprofit and business sectors. Keep in mind that nonprofits are, in a sense, "quasi-public" organizations because the government is granting them special status as tax-exempt organizations.