When the founders of a local church came to me after their 501(c)(3) application was denied, I discovered why: Their bylaws accidentally allowed board members to profit from the organization. The IRS flagged it immediately. When starting a nonprofit it is important to avoid costly legal missteps.
After helping many nonprofits get established, here are the key lessons I share:
1. The “We’ll Figure Out Governance Later” Mistake
Many groups draft vague bylaws thinking they’ll refine them later. But the IRS wants to see:
- Clear director election procedures
- Conflict of interest policies
- Specific dissolution clauses
My tip: Use your bylaws to prevent internal disputes before they happen.
2. The “All Volunteers Don’t Need Paperwork” Trap
Even unpaid positions need:
- Background checks (especially for youth orgs)
- Position descriptions
- Confidentiality agreements
Recent case: A client avoided major liability because we’d documented their volunteer screening process.
3. The “We’re Small So Compliance Doesn’t Matter” Myth
I had to help a $50k/year nonprofit through an IRS audit because they:
❌ Didn’t file Form 990-N (e-postcard) for 3 years
❌ Paid a board member’s cousin without documenting it
My Process for New Nonprofits:
1. Entity formation with IRS-compliant language
2. Bylaws tailored to your mission
3. Ongoing compliance calendar
