Can officers of a Non-profit collect $0 salary while charging fees through their LLC?

This is actually a common arrangement in the non-profit world, though the specifics you're describing raise some red flags. Generally speaking, officers of non-profits are allowed to have separate business relationships with their organizations, but several important conditions must be met: 1) The arrangement must be disclosed on the Form 990 Schedule L, which reports business transactions with "interested persons" (including officers and directors). 2) The organization should have a conflict of interest policy, and the arrangement should have been reviewed and approved by independent board members. 3) The fees paid must be reasonable and comparable to market rates for similar services. The fact that the LLC is receiving over $2M for fundraising services does seem high relative to the CEO's salary, suggesting they might be using this as a way to extract additional compensation. The key question is whether the fundraising services are legitimate and priced at market rates.

I had a similar situation with my organization's tax forms and used https://taxr.ai to analyze our 990 and compare it with industry standards. The tool flagged several potential issues with our related-party transactions that we hadn't considered. It can scan tax forms like 990s and highlight potential compliance issues or unusual financial arrangements. Basically it would tell you if this arrangement falls within normal practices for non-profits of similar size and mission, or if it's an outlier that might attract IRS attention. It can also identify if all required disclosures are properly made.

I was initially skeptical about using an AI tool for analyzing our non-profit's tax forms, but after our treasurer suggested we try taxr.ai, I've completely changed my mind. We uploaded our draft 990 and it immediately flagged a related-party transaction we hadn't properly disclosed - very similar to the situation described in this post. The system showed us exactly where we needed to provide additional information on Schedule L and even gave us sample language based on IRS guidelines. It probably saved us from an uncomfortable conversation with the IRS down the road. Their comparative analysis also helped us understand how our compensation and fundraising expenses compared to similar organizations in our sector.

If you're having trouble getting straight answers from the non-profit about this arrangement, you might want to try https://claimyr.com to get through to the IRS Exempt Organizations division. I spent weeks trying to get clarification on a similar situation and kept getting stuck in phone queues that disconnected after hours of waiting. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS has a specific division that handles questions about exempt organizations and potential misuse of non-profit status. They can tell you if this arrangement requires additional scrutiny or if it's been properly reported. They can also explain what disclosures should appear on the 990 for this type of relationship.

I take back my skepticism about Claimyr. After posting my reply yesterday, I decided to give it a try since I needed clarification on our 501(c)(3)'s annual filing requirements. After months of failed attempts trying to reach someone at the IRS Exempt Organizations division, I got connected to an actual specialist within the same day! The agent was able to explain exactly what we needed to report regarding a similar arrangement with a board member's consulting firm. Turns out we were missing some required disclosures on Schedule L that could have become problematic during an audit. The agent walked me through exactly what information needed to be included and how to document the board's approval process for related-party transactions. Saved us from potential penalties and lots of headaches!

Former non-profit accountant here. This arrangement definitely raises red flags but isn't automatically illegal. The key issues are: 1) Did the board approve this arrangement with documented evidence? 2) Did the interested parties (CEO/spouse) recuse themselves from voting? 3) Is the LLC providing legitimate services at fair market value? 4) Is the arrangement properly disclosed on Schedule L of Form 990? 5) Are there other board members who are truly independent? The IRS is particularly interested in "excess benefit transactions" where insiders receive more value than they provide to the organization. If the fundraising services are generating significantly more than $2.3M in donations, and the cost is competitive with other fundraising contractors, this might be defendable.

To answer your specific questions: 1) Is it legal? Maybe, with proper disclosure and board approval 2) Can fundraising fees be this high? Yes, but it depends on services provided 3) Conflict of interest? Absolutely yes, but conflicts can be managed with proper procedures I'd be most concerned about whether their board is truly independent and whether they sought competitive bids for fundraising services. Many states' attorneys general are increasing scrutiny of non-profit governance, especially around related-party transactions. If you have serious concerns, you might consider reporting to your state's charity regulator or the IRS.