The most common starting point for a conflict of interest policy example is Appendix A of the IRS Instructions for Form 1023, the sample the IRS publishes for nonprofits seeking 501(c)(3) status.1Internal Revenue Service. Instructions for Form 1023 Nonprofits, private companies, and government contractors all borrow that template and then add the provisions their tax status, industry, or funding source requires. The skeleton stays the same across every version: define who is covered, require them to disclose financial interests, and set a procedure for the rest of the board to handle the transaction without them in the room.
What the IRS Sample Policy Contains
The IRS sample is short, plain-language, and organized around five moving parts. Any organization can lift it verbatim and have a functioning policy the same day.
Who Is Covered
The sample defines an “interested person” as any director, principal officer, or member of a committee with board-delegated authority who has a direct or indirect financial interest.1Internal Revenue Service. Instructions for Form 1023 A financial interest includes ownership stakes, investments, and compensation arrangements with any entity doing business with the organization, and it reaches indirect interests held through family members or business partners. Compensation covers salary as well as gifts and favors beyond token value.
Disclosure
When a covered person has an actual or possible conflict, the policy requires them to disclose the financial interest and all material facts to the board or committee reviewing the transaction.1Internal Revenue Service. Instructions for Form 1023 Having a financial interest doesn’t automatically mean a conflict exists; the board decides that after hearing the disclosure.
Recusal
Once the interested person discloses, they leave the meeting while the remaining members discuss whether a conflict exists.1Internal Revenue Service. Instructions for Form 1023 If the board finds a conflict, the interested person may present information but must step out again for the deliberation and vote on the underlying transaction.
Alternatives and the Reasonableness Finding
Before approving a conflicted transaction, the board must investigate whether a more advantageous arrangement is reasonably available from a party with no ties to a board member. If it approves the transaction anyway, it should document why the deal was still in the organization’s best interest.
Minutes
The sample requires the minutes to record the names of those present for the discussion, the nature of the financial interest, the alternatives considered, and the board’s decision. That paper trail is what the IRS or a state attorney general will ask for if the transaction is later questioned.
Annual Certification
The sample also includes an annual statement each covered person signs, confirming they received the policy, read it, agree to comply, and understand the organization’s exempt purpose.1Internal Revenue Service. Instructions for Form 1023
What to Add If You’re a Nonprofit
The IRS sample gets a 501(c)(3) through the application process, but it doesn’t cover the tax exposure your insiders face once you’re operating. Three provisions handle that gap.
An Excess Benefit Clause Tied to Section 4958
Section 4958 of the Internal Revenue Code imposes a 25% excise tax on any “disqualified person” who receives an economic benefit from a tax-exempt organization that exceeds what they provided in return. If the benefit isn’t corrected within the taxable period, the tax jumps to 200%. Any organization manager who knowingly approved the transaction faces a separate 10% tax, capped at $20,000 per transaction.2Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions
A Rebuttable Presumption Procedure
Nonprofits can protect insiders from Section 4958 exposure by following a three-step process the IRS recognizes as creating a rebuttable presumption that a compensation arrangement or transaction is reasonable:
- The arrangement is approved in advance by an authorized body of individuals who have no conflict of interest in the transaction.
- Before voting, that body obtains and relies on appropriate comparability data from similar arrangements at comparable organizations.
- The body documents the basis for its decision at the time it is made, including the terms, the comparability data used, and each member’s vote.
When all three steps are met, the burden shifts to the IRS to prove the compensation was unreasonable.3Internal Revenue Service. Rebuttable Presumption – Intermediate Sanctions The policy should walk through these steps in the compensation-setting section, not leave them for the board to remember.
A Schedule L Cross-Reference
Nonprofits filing Form 990 must complete Schedule L to report transactions with interested persons, including business dealings, loans, grants, and other financial arrangements.4Internal Revenue Service. Instructions for Schedule L (Form 990) – Transactions With Interested Persons The schedule asks for the interested person’s name, their relationship to the organization, the amount, and a description of the transaction.5Internal Revenue Service. Schedule L (Form 990) – Transactions With Interested Persons Form 990 is public, so donors and journalists will see these disclosures. Tying the annual disclosure form to the Schedule L categories means the information you need for the return is already in hand.
What to Add If You’re a For-Profit Corporation
Corporate policies address fiduciary duties to shareholders rather than tax-exempt status. Three provisions rarely appear in the nonprofit template and belong in a corporate version.
A Corporate Opportunity Clause
Directors and officers owe a duty of loyalty that prohibits them from diverting business opportunities belonging to the corporation. An executive who discovers an investment or acquisition opportunity through their role cannot take it personally when the corporation is financially able to pursue it, the opportunity falls within the company’s line of business, and the company has an interest in it.6Cornell Law Institute. Corporate Opportunity The remedy for a violation is typically a constructive trust: the court orders the executive to hand over the opportunity and any profits from it. Corporate policies commonly require officers to present potentially relevant opportunities to the board before pursuing them personally, which creates a recognized safe harbor.
An Interlocking Directorate Disclosure
Section 8 of the Clayton Act prohibits the same person from serving as a director or officer of two competing corporations when both exceed a certain size. The base statutory threshold is $10 million in combined capital, surplus, and undivided profits, adjusted annually for inflation; for 2026, the adjusted figure is roughly $54.4 million per corporation, with a de minimis exemption when competitive sales fall below about $5.4 million. An interlock is still permitted if the competitive sales of either corporation are less than 2% of that corporation’s total sales, or if both corporations’ competitive sales are each below 4% of their total sales.7Office of the Law Revision Counsel. 15 USC 19 – Interlocking Directorates and Officers A corporate policy should require every covered person to disclose all outside board and officer positions annually so counsel can check for a Section 8 problem.
Self-Dealing and Outside Employment
Corporate policies typically prohibit employees from working for competitors or using company resources for side businesses. Self-dealing provisions require board approval before any officer contracts with a company they personally own or control.
What to Add If You Contract With the Government
Federal employees face the strictest conflict rules in the country, and they carry criminal penalties. Under 18 U.S.C. ยง 208, any executive branch officer or employee who participates personally and substantially in a government matter where they, their spouse, minor child, or certain affiliated organizations hold a financial interest can be prosecuted.8Office of the Law Revision Counsel. 18 USC 208 – Acts Affecting a Personal Financial Interest Contractors face their own exposure: failing to disclose organizational conflicts of interest can lead to debarment, cutting the company off from future federal contracts. A policy for an organization that touches federal money should name these risks directly rather than rely on the generic template.
Non-Financial Conflicts the Template Misses
The IRS sample focuses on financial interests, but some of the most damaging conflicts involve no money. A board member who sits on the boards of two organizations with competing missions faces a loyalty conflict with no financial stake in either. A values-based conflict arises when a board member publicly advocates for positions that contradict the organization’s core principles.
Some organizations use “duality of interest” to describe overlapping affiliations that may or may not become problems. A blanket ban on outside board service is impractical, but a disclosure requirement gives the full board a chance to evaluate whether a specific dual role creates a genuine conflict. Limiting the policy to financial interests alone leaves reputational and governance risks uncovered.
Tailoring the Template to Your Organization
A working policy needs three decisions the template leaves open.
Who counts as a covered person. The IRS template names directors, officers, and committee members with delegated authority. Most organizations should extend that to senior employees with purchasing or contracting authority, procurement staff, and anyone who approves expenditures. A procurement manager who picks vendors can steer money as effectively as a board member.
Where the materiality and gift thresholds sit. Organizations typically set a dollar floor below which gifts or financial interests don’t trigger disclosure. Gift limits commonly fall between $50 and $100, though industry norms vary. Research institutions receiving federal funding often work under stricter thresholds set by the funding agency.
Who reviews the disclosures. In smaller nonprofits, the board chair or a governance committee typically handles it. Larger corporations route disclosures to a compliance officer or general counsel. Whoever reviews them should not report to the people being reviewed.
Making the Policy Work After Adoption
Drafting is the smaller half of the job. The board should formally vote to adopt the policy, with the vote in the minutes, and each covered person should sign an acknowledgment confirming they’ve read and understood it. Keep those signed forms accessible for audits and legal inquiries.
Run the annual disclosure cycle every year without exception. Beyond the boilerplate certification the IRS sample includes,1Internal Revenue Service. Instructions for Form 1023 the annual form should ask each person to list current financial interests, outside employment, family relationships with vendors or grantees, and other board positions. Circumstances change; a one-time disclosure at hiring won’t catch them.
Training uses realistic scenarios drawn from your industry to walk people through what a conflict looks like and how the disclosure and recusal process works. Cover gifts, entertainment, outside employment, personal relationships with vendors, and the specific red flags most likely to appear in your organization.
Designate someone to actually read the annual disclosures and follow up on issues. When a conflict exists but recusal alone isn’t practical, mitigation can include restricting the conflicted person’s access to relevant information, reassigning decision-making authority, or setting up an internal firewall between the conflicted role and the affected transaction.
Include an anti-retaliation channel. Publicly traded companies must have one: Section 806 of the Sarbanes-Oxley Act prohibits retaliation against any employee who reports conduct they reasonably believe violates securities laws or defrauds shareholders.9Office of the Law Revision Counsel. 18 USC 1514A – Civil Action to Protect Against Retaliation in Fraud Cases Organizations not covered by Sarbanes-Oxley still benefit from anonymous reporting channels; a policy that depends entirely on the conflicted person to self-report has a built-in blind spot.
Consequences to Write Into the Document
The policy should spell out disciplinary consequences, from written warnings for minor oversights to termination for deliberate concealment. For nonprofits, the real enforcement lever is Section 4958: the 25% excise tax on the disqualified person, escalating to 200% if the benefit isn’t returned, plus the 10% manager-level tax on anyone who knowingly approved the deal.2Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions For government contractors, undisclosed organizational conflicts can trigger debarment. Licensed professionals such as attorneys and financial advisors face discipline from their licensing boards, including revocation. Naming these consequences in the document signals that the policy is treated as governance rather than paperwork.