Insider Transactions

One of the most highly-scrutinized areas by governmental regulatory authorities arises when the exempt organization enters into an insider transaction. An insider transaction is one that is undertaken between the exempt organization and an insider of the organization (voting Board of Directors members, Officers, top management individual, top financial individual, key employee, highly compensated employee). This is because insider transactions generally have a high potential of leading to a finding of prohibited private inurement. Even an incidental amount of private inurement can jeopardize the entity’s tax-exemption.

Notwithstanding the fact that an insider transaction (also commonly referred to as a conflict transaction), in and of itself, does not automatically lead to a finding of private inurement, all insider transactions are still required to be disclosed on the Form 990 (Schedule L). That all being said, it is essential for an exempt organization conducting insider transactions to engage an advisor with extensive knowledge in the addressing and reporting of insider transactions.

In such regard, we provide the following consulting services in the insider transactions area:

  • Consulting regarding the implementation of effective conflict of interest policies and the procedures which need to be following when an insider (conflict) transaction is proposed to be undertaken by the exempt organization.
  • Consulting regarding the actions which need to be taken by an exempt organization’s Board of Directors when an insider transaction has been undertaken and the necessary procedures have not been undertaken.
  • Consulting regarding how best to accurately and completely prepare Schedule L of the Form 990 to report an insider transaction, including providing guidance when Schedule L of the Form 990 is not required to be prepared.
  • Consulting regarding the executive compensatory practices of exempt organizations from a perspective of avoiding a situation where an excess benefit transaction is identified.
  • Consulting regarding the insider loan documentation requirements.
  • Consulting regarding excess benefit transactions and how best to avoid such from arising and what best to undertake when such has already arisen.
  • Consulting regarding the drafting of effective Board policies and procedures.