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David Weilbacher, Esq.
David Weilbacher, Esq., Attorney
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I belong to a 501(c)3 charitable organization that has 10 board

Resolved Question:

I belong to a 501(c)3 charitable organization that has 10 board members and nearly 90 members. The question is nepotism on the Board. The board has 2 mother daughter combos and a father daughter combo, with 4 other members non related. Isn't there a rule against this for a 501(c)3? We are re-writing our bylaws and would like to introduce a nepotism clause. Does the above fall under this catagory?
Submitted: 5 years ago.
Category: Business Law
Expert:  David Weilbacher, Esq. replied 5 years ago.

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

“Nepotism" occurs when family members work under the supervision of another family member. It's not illegal but it does present a variety of risks, but it does create potential problems, because of the excess benefits rules and, in particular, the new rules on "disqualified persons," there is an additional incentive to consider the risks of nepotism. However, your situation is really one regarding blocks of voting power, rather than nepotism. As long as these related people are not in a position to benefit one another, there is no nepotism by them all being on the board. Now, you board may want to consider a rule against board members nominating family members to fill vacate board seats.

But to answer your direct question, there is no law that prevents a 501(c)(3) from engaging in nepotism in and of itself. There are tax regulations that prevent particular employees from receiving benefits in disproportion to the value of their service to the organization, but that does not appear to be the situation you are facing.

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David Weilbacher, Esq., Attorney
Category: Business Law
Satisfied Customers: 335
Experience: Criminal & Civil Litigation, Estate Planning, Probate, and Bankruptcy
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