Define: Inurement

Inurement refers to the improper use of a nonprofit organisation’s assets or income for the personal benefit of individuals who have a close relationship with the organisation, such as its officers, directors, or key employees.

Yes, inurement is illegal for nonprofit organisations. Nonprofits are required to operate exclusively for charitable, educational, religious, or other exempt purposes, and any personal benefit to individuals that exceeds reasonable compensation is considered inurement.

If a nonprofit organisation engages in inurement, it may face penalties such as loss of tax-exempt status, fines, or even criminal charges. Additionally, the individuals benefiting from inurement may be personally liable for any improper use of the organisation’s assets.

To avoid inurement, nonprofit organisations should establish clear policies and procedures regarding compensation and benefits for their officers, directors, and key employees. These policies should ensure that any compensation provided is reasonable and directly related to the services rendered to the organisation.

Reasonable compensation refers to the fair and appropriate payment made to individuals for their services to a nonprofit organisation, considering factors such as their qualifications, responsibilities, and comparable salaries in similar organisations. Inurement, on the other hand, involves excessive compensation or personal benefits that go beyond what is reasonable.

Yes, nonprofit organisations can provide reasonable compensation to their officers or directors for the services they provide. However, the compensation must be based on fair market value and should not result in excessive personal benefit or inurement.

The IRS may investigate a nonprofit organisation to determine if inurement has occurred by reviewing its financial records, compensation arrangements, and any other relevant documentation. They may also consider complaints or tips received from whistleblowers or other sources.

In general, nonprofit organisations should avoid providing loans or financial assistance to their officers or directors, as it may raise concerns about inurement. However, there may be certain circumstances where such assistance is allowed, but it must be carefully structured and documented to ensure compliance with the law.

Nonprofit organisations can provide reasonable benefits or perks to their employees as part of their compensation package. However, these benefits should be based on legitimate business needs and should not result in excessive personal benefit or inurement.

If you suspect inurement within a nonprofit organisation, you can report your concerns to the IRS or the appropriate state regulatory agency. Whistleblower protections may be available to individuals who report inurement or other illegal activities within nonprofit organisations.