I am a member of a 501(c)(3) service club. I am told that the club cannot make a contribution to a 501(c)(3) youth organization because my wife is a member of its Board and that such a gift is prohibited by the IRS as a conflict of interest. Is this true?
No. A public charity is not prohibited by the Tax Code from making a contribution to another public charity because of relationships among members of the Boards. The club may have a policy of not giving to an organization where a relative of a member is on the governing body, but that would arbitrarily eliminate gifts to a lot of good organizations, and is certainly not required by the IRS. Ask for a specific citation of authority for the statement. Whoever told you the rule may have a hard time finding it.
Agreed, but if you are a board member disclose the relationship and abstain from voting.