A nonprofit organization must exist for the public good, without restriction of access of any sort. A new nonprofit organization and its work must be freely available to all who wish to seek it. The IRS regulations list that the “operational test” for the public nature of a nonprofit:
“Reg. 1.501(c)(3)–1(d)(l)(ii) provide that to meet the operational test, an organization must be engaged in activities furthering "public" purposes rather than private interests. It must not be operated for the benefit of designated individuals or the persons who created it.”
Because the members of a nonprofit constitute “the public,” these members, too, can take advantage of what the organization has to offer. The members must not have a financial interest in the operation of the business, and should be aware that using any insider information or taking any special favors is considered illegal. As such, an NPO must be very careful about not only who can join, but also about how the members of the organization benefit. Members cannot receive any special reimbursement, especially if the compensation is part of funds that have been turned back into the organization.[i]
[i] IRS Web site: http://www.irs.gov/irm/part7/ch10s05.html#d0e85950
