The Interaction of Intermediate Sanctions and Revocation of Exempt Status Due to Inurement
The IRS has developed extensive rules against private inurement
and private benefit transactions and is empowered to impose harsh financial penalties against individuals and management and, in situations involving egregious violations, to revoke the charity's tax exempt status entirely.
Technically, any inurement
, regardless of amount, can trigger the loss of exempt status.
Managing Conflicts of Interest: A Primer for Nonprofit Boards addresses the most recent state and federal laws governing conflicts of interest; important legal concepts, including private inurement
, private benefit, and intermediate sanctions; situations that give rise to conflicts of interest; creation of a conflict-of-interest policy and the need for proper disclosure; establishment of a procedure for responding to existing conflicts; the use of an organizational code of ethics and maintenance of an overall culture of integrity; and special considerations for private foundations in dealing with conflicts of interest.
Other legal areas that may be implicated include private inurement
, private benefit, and the intermediate sanctions penalties.
Health care entities that have been granted tax-exempt status need to be especially careful in entering into certain financial arrangements with physicians because of the potential of the Service's finding inurement
or private benefit based on such arrangements.
111) The Ninth Circuit affirmed on the grounds of private inurement
, and did not reach the other grounds for the Tax Court's decision.
Accordingly, for a tax-exempt IDS, it is essential that the incentives be aligned to achieve business goals to avoid private inurement
leads to acceptance, and further marketing will follow (e.
53) For example, inadequate rent charged by the entity to an officer of the company would constitute inurement
Prohibitions Against Private Inurement
But many exemption categories contain a proscription on private inurement
(often called the nondistribution constraint).