Nonprofit Accounting Basics

Independent Voting Members of the Board

The definition of an independent voting member of the Board of Directors includes four criteria that must be met for independence:

  • The individual received no compensation as an officer or other employee of the organization, or a related organization. It should be noted that there is a religious exception to this criteria.
  • Total compensation or other payments from the organization and any related organizations as an independent contractor did not exceed $10,000. Reimbursement of reasonable expenses under an accountable plan and reasonable compensation for services provided in the capacity as a member of the board are not included in the $10,000.
  • Neither a member, nor any family member of a member, was involved in a transaction with the organization that is required to be reported on Schedule L, Transactions with Interested Parties. This not only includes direct transactions, but also indirect transactions through affiliation with another organization.
  • Neither the member, nor any family members of the member, was involved in a transaction, either directly or indirectly, with a taxable or tax-exempt related organization of a type and amount that is required to be reported in Form 990, Schedule L, Transactions with Interested Parties, for the organization’s tax year.

Transactions to be reported in Schedule L include excess benefit transactions, loans to/from interested parties, grants or assistance benefiting interested parties, and business transactions involving interested parties.

There are also circumstances that may not jeopardize independence:

  • The member is a donor, without regard to the amount of the contribution.
  • The member has taken a bona fide vow of poverty and compensation that is not considered taxable income is received as an agent of a religious order, or is received through sponsorship by the organization of a religious, or that is not taxable income to the member. This is the religious exception noted above.
  • Financial benefits are received from the organization solely in the capacity of being a member served by the organization in the exercise of its exempt function.