With the IRS’ new commitment to “data-driven decision making” they are likely querying all Form 990’s to ensure that institutions are reporting that they have a board-approved Conflict of Interest Policy in place.


Troas Bible College (TBC) is a higher education institution that is exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).   TBC files Form 990, Return of Organization Exempt From Income Tax, each year.  As we are working with them to prepare a complete and accurate Form 990 for the most recent tax year.  We note that they have historically answered “No” to Form 990, Part VI, Line 12a, “Did the organization have a written conflict of interest policy?”

We advise them that all organizations should have their boards adopt a conflict of interest policy.  The purpose of the conflict of interest policy is to protect the tax-exempt organization’s (TBC’s) interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of TBC or might result in a possible excess benefit transaction.  A great model policy can be found in the instructions of IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (Appendix A).


From the 2015 Form 990, Part VI, Line 12 instructions (page 22):

Line 12a. Answer “Yes,” if as of the end of the organization’s tax year, the organization had a written conflict of interest policy. A conflict of interest policy defines conflicts of interest, identifies the classes of individuals within the organization covered by the policy, facilitates disclosure of information that can help identify conflicts of interest, and specifies procedures to be followed in managing conflicts of interest. A conflict of interest arises when a person in a position of authority over an organization, such as an officer, director, manager, or key employee can benefit financially from a decision he or she could make in such capacity, including indirect benefits such as to family members or businesses with which the person is closely associated. For this purpose, a conflict of interest does not include questions involving a person’s competing or respective duties to the organization and to another organization, such as by serving on the boards of both organizations, that do not involve a material financial interest of, or benefit to, such person.

Example. B is a member of the governing body of X Charity and of Y Charity, both of which are section 501(c)(3) public charities with different charitable purposes. X Charity has taken a public stand in opposition to a specific legislative proposal. At an upcoming board meeting, Y Charity will consider whether to publicly endorse the same specific legislative proposal. While B may have a conflict of interest in this decision, the conflict does not involve a material financial interest of B’s merely as a result of Y Charity’s position on the legislation.

Line 12b. Answer “Yes,” if the organization’s officers, directors, trustees, and key employees are required to disclose or update annually (or more frequently) information regarding their interests and those of their family members that could give rise to conflicts of interest, such as a list of family members, substantial business or investment holdings, and other transactions or affiliations with businesses and other organizations and those of family members.

Line 12c. If “Yes” on line 12c, describe on Schedule O (Form 990 or 990-EZ) the organization’s practices for monitoring proposed or ongoing transactions for conflicts of interest and dealing with potential or actual conflicts, whether discovered before or after the transaction has occurred. The description should include an explanation of which persons are covered under the policy, the level at which determinations of whether a conflict exists are made, and the level at which actual conflicts are reviewed. Also explain any restrictions imposed on persons with a conflict, such as prohibiting them from participating in the governing body’s deliberations and decisions in the transaction.

Bottom Line

Your school’s conflict of interest policy is intended to supplement but not replace any applicable state and federal laws governing conflict of interest applicable to nonprofit and charitable organizations.  It is a great best practice to consult with a qualified legal and/or tax advisor and get their guidance and assistance when you are preparing to present items to your governing board for potential adoption.  He or she will be able to help your school navigate the various rules/laws/codicils that are out there.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.