7 defining elements of independent directors

That good ol’ Form 990 just seems to get more baffling each year, and nonprofit executives have all they can do just to keep up with the changes, which are usually one step ahead of them.

One item that can be a source of confusion for 990 filers is that of Independent Director. This is just one more hidden trap for the unwary trying to follow the guidelines.

Speaking during the AICPA Not-for-Profit Industry Conference, Eve Borenstein of Eve Rose Borenstein, LLC and Jane Searing of Clark Nuber P.S. outlined the requirements related to independent directors. Borenstein and Searing said an individual is an independent director if the person meets the following requirements. All of the must be met, and it must be at all times during the year. They are:

  • Not compensated as an officer or employee of the reporting or a related organization;
  • An independent contractor paid no more than $10,000;
  • Paid reasonable compensation and/or reimbursements for board service; and,
  • Not a party to a reportable Schedule L transaction for the organization or a related organization.

These three might not impact independence:

  • A donor, regardless of whether the donor is substantial;
  • Subject to the religious exception; and,
  • Receiving benefits as a member of the beneficial class.