Evaluating Payments in Lieu of Tax in Light of Nonprofit Directors’ Fiduciary Duties

Payments in lieu of tax – or PILOTs – have proven a creative and successful approach to balancing the tax-exempt status of nonprofit entities with the need to finance rising costs of municipal services that benefit nonprofit and for-profit entities alike. By making voluntary payments in lieu of tax, nonprofits can further assist struggling communities and foster strong partnerships with local government, while at the same time preserving their historic tax exempt status.

There is, however, a natural tension between agreeing to PILOTs – which are typically voluntary – and nonprofit directors’ fiduciary duty to at all times act in the best interests of the nonprofit entity. This paper explores that tension and provides guidance for nonprofit directors to evaluate PILOTs in a manner that is consistent with their fiduciary duties.

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