I have been told by the IRS that the person in charge of day-to-day operations (the President) of our nonprofit organization cannot be on the board of directors, and the President, Vice-President, and Treasurer/CFO may not be related. I am (currently) the treasurer and my wife is Founder/President of the organization. The IRS says this is improper and even if I quit, my wife cannot be President and Director. The IRS agent gave me an involved explanation that the Board of Directors represents the community and even if my wife had founded the organization, that did not give her any right to have a say at the Board level!

The agent also told me that expenses (like buying a ream of paper from Staples) incurred by a board member could NOT be reimbursed. She said that the board member could not even ask the nonprofit to consider these as donations (and give a letter acknowledging the donation) because it was "inurement" and would result in loss of 501(c)(3) qualification. Then she added that even if the board member did not seek reimbursement, this was illegitimate mingling of accounts with a board member and therefore inurement. I explained that I get a discounted price on internet services by piggybacking on my existing home network account, but that the nonprofit would be considered a new account and would be charged the full price if it signed up separately. This was inurement and illegal commingling and the nonprofit MUST get its own account and pay more if that was what it took, she said.

Are there IRS employees who are certifiably nuts and should be avoided?