Need a little help.

Our organization is a registered publicly supported non-profit corporation in the state of Oregon. We have applied for 501(c)(3) status, but have not yet received approval. Membership dues, fees for services we provide and fundraising endeavors, support us. We have no employees and pay no salaries. Elections are held each year for the offices of President, Vice President, Secretary and Treasurer. Members, who have volunteered, been nominated and elected, fill all positions. I am the current Treasurer. Committees are formed as needed, drawing from our membership to fill the voluntary committee chair positions.

One of our sources of income is to hold fundraising horse shows several times throughout the year. The manager of each show is the show committee chairperson who has previously volunteered for the job. This person is responsible for all aspects of the show, from planning stages to finding sponsorships and collecting the money to, and including, completion of the show and closing the books on it. Awards/Prizes and ribbons are purchased using

Sorry, my post was too long to fit. Please delete. I will reword.

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We are a public non-profit in Oregon. Applied for 501(c)(3), but not yet received. Membership dues, fees for services we provide and fundraising endeavors, support us. We have no employees and pay no salaries. All positions are voluntary. I am the current Treasurer. One of our sources of income is to hold fundraising horse shows several times throughout the year. The manager of each show is the show committee chairperson (volunteer). Awards/Prizes are purchased using “show funds”, which is designated sponsorship money if available, prior to the event. If not enough sponsorship money, we dive into the general fund to supplement the show.

At one of our last events, the Show Manager ordered and received the awards/prizes for the show from her own, newly established, in-home business and then presented me with the invoice for payment. This invoice clearly indicated her business mark-up on the items she had purchased from herself and then resold to our organization. Of course, I squawked and told her that this type of transaction made the hair on the back of my neck stand up and that as far as I knew, it was illegal for her, a voting member, to derive personal profit while acting on the organization’s behalf. I refused to pay the bill and told her to send everything back and purchase the awards/prizes for her show from another vendor. The President of the organization overturned my decision and wrote a check to pay the invoice on the grounds that there wasn’t sufficient time left before the show to place an order elsewhere, telling me that it was all above board and that it would be ok. Not to worry.

So, my question is, am I right or wrong? I have no legal background, but it certainly seems to me as if a transaction of this nature would be, at the very minimum, frowned upon. Can someone back me up here and give me something to quote and take back to the Board to tell them that we cannot allow any member, especially a voting member, to derive personal profit at the expense of the organization?

That type of sale can occur if it is clearly at market rates and there are not reasonable alternatives. But the IRS will look at that closely and it can jeopardize your non-profit status. For that reason it is best to avoid if possible.

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Originally Posted by Unregistered

That type of sale can occur if it is clearly at market rates and there are not reasonable alternatives. But the IRS will look at that closely and it can jeopardize your non-profit status. For that reason it is best to avoid if possible.

Thank you for reinforcing my stand on this matter. I will take this back to the Board and warn them once again. I had known about the "no reasonable alternatives" clause, where if you can't purchase those specific items elsewhere, it's allowable. Frowned upon, but allowable. However, in this case, there were alternatives and even though those alternatives may have taken longer to receive and possibly not made it in time for the event, lack of planning doesn't justify what was done. Especially since the event had been on the calendar for months, sponsorships had been paid well in advance and the ordering didn't take place until after this particular person had established her own new business.