Question 1

Can nonprofit board members be sued?

Accepted Answer

Nonprofit board members can be sued, but personal liability is limited under both Washington law and the federal Volunteer Protection Act as long as you act in good faith, exercise reasonable care, and avoid self-dealing. Most nonprofits also carry D&O insurance to cover defense costs even when the lawsuit has no merit. These protections are real, but limiting your risk ultimately depends on understanding and fulfilling your fiduciary duties of care, loyalty, obedience, and the duty to share information (a statutory requirement in Washington state), not just on showing up and approving whatever is put in front of you.

Question 2

Can we hire a board member as a vendor?

Accepted Answer

A nonprofit can hire a board member as a vendor, but it is not always a good idea, and it has to be done right. The board member must disclose the conflict, recuse themselves from the vote to approve their hiring, and the transaction must be approved by disinterested board members on terms that are fair to the organization. Skipping these steps is one of the most common triggers for IRS scrutiny and investigations by the Washington Attorney General's Office.

Question 3

Should the board meet without the executive director?

Accepted Answer

Yes, nonprofit boards should meet periodically without the executive director. Most governance best practices recommend executive sessions without staff present for discussions about ED performance, compensation, and sensitive legal or financial matters. It's not a sign of distrust; it's a sign of a healthy board doing its job.

Question 4

Is our tax-exempt status at risk if we don't sign the new certifications about DEI and gender ideology?

Accepted Answer

Your 501(c)(3) public charity status itself is not at risk from refusing to sign federal grant certifications as that status is determined by the IRS based on your mission and activities, not by the current administration's grant conditions. What is at risk is the specific federal funding attached to those certifications. Organizations should review each grant individually and get legal advice before signing certifications they may not be able or wish to comply withbefore walking away from funding they may be able to protect.

Question 5

How do we set the executive director's salary without putting our tax-exempt status at risk?

Accepted Answer

The IRS requires that nonprofit executive director compensation be "reasonable," and the safest way to document that your ED's salary is not too high is to follow the rebuttable presumption process — get comparable compensation data from similar organizations, have disinterested board members approve the salary, and record the decision in board minutes before compensation is set. This process shifts the burden to the IRS to prove the pay is excessive, which is meaningful protection in a nonprofit audit. Getting it wrong can trigger intermediate sanctions under IRC § 4958, meaning excise taxes on the executive director and the board members who approved the payment.