Each Christmas, the charity Wreaths Across America places millions of dollars in decorations on military graves at Arlington National Cemetery and elsewhere, in what has become a national remembrance of the country’s fallen.

Tax filings, court documents and interviews, however, reveal a distinctly commercial aspect to the charity’s operations.

The charity buys its wreaths exclusively from a company owned by the same Maine family, the Worcesters, that started the nonprofit. Worcester family members and former company employees run the charity and have seats on its board.

The relationship has been vital to Worcester Wreath Co. Its sales to Wreaths Across America helped revive the Harrington, Maine, supplier, with $25 million in total orders, making up for the significant business it lost since a dispute with L.L. Bean, the outdoor specialty store.

Sales to the charity now make up 75% to 80% of Worcester Wreath’s revenue, according to Rob Worcester, co-owner of the operation’s parent company.


It is legal for charities to do business with related people or companies, said tax attorney Marcus Owens, former director of the Internal Revenue Service division overseeing tax-exempt organizations. Wreaths Across America discloses the purchases in its tax filings, along with the presence of Worcester-related parties on its board.

The overlap nonetheless raises questions about the close relationship between the two organizations.

Federal and state regulators “examine closely the details of those sorts of deals because there’s a huge potential for essentially the charity allowing its assets to be diverted to private use,” said Mr. Owens. If the deal benefits the related company to the detriment of the charity, the charity could lose its tax-exempt status, he said.

Wreaths Across America officials say purchases are approved by independent board members, and that family members and ex-company employees recuse themselves from procurement decisions.


“While some may question the close relationship between the two organizations, [Worcester Wreath Co.] has supplied wreaths at below-market prices and with the supply-chain flexibility that has enabled [Wreaths Across America] to grow,” said Wayne Hanson, a former federal criminal investigator who is chairman of the charity’s board.

The charity’s executive director, Karen Worcester, who is married to Worcester Wreath President Morrill Worcester, said next year the board will consider a proposal to seek bids from other suppliers for the 2017 Christmas season, a move she said the charity has been mulling since last year.

Some Maine wreath suppliers say they could sell wreaths to the charity for a dollar or two cheaper than the Worcester company. Potential suppliers have contacted the charity asking to bid, but it doesn’t accept such offers, Ms. Worcester said.

The exclusive relationship between the Worcester charity and company “has been a thorn in my side for a long time,” said Steve Gay, who recently sold his wreath company in Machias, Maine.


Added David Whitney, a Worcester rival who now supplies L.L. Bean: “There are plenty of wreath producers here in Downeast Maine who would love to participate in that growth.”

Worcester now charges the charity $8.50 a wreath, which after costs leaves $1.20 in profit, according to Rob Worcester, a son of Morrill and Karen. This year, the company sold 876,000 wreaths to the charity, suggesting a profit of $1.05 million. Worcester donated 25,000 additional wreaths, a deductible loss of about $183,000.

Wreaths Across America began as a family tradition in the early 1990s, when Morrill Worcester one year found himself with 5,000 surplus wreaths. Through his senator, he secured permission to place the wreaths on 10 acres of graves in Arlington National Cemetery in Virginia. Other local companies donated, too.

“The good Lord gave that to my family to do, and that’s the way I feel about it,” Mr. Worcester, now 66 years old, said in an interview.


In 2005, an Air Force photographer snapped a picture of green and red Worcester wreaths leaning against marble tombstones in the snow-covered cemetery. Mr. Worcester found himself inundated with requests from people who wanted to help.

Two years later, the Worcester family established the tax-exempt charity. Ms. Worcester, Morrill’s wife, became executive director. Their daughter and two daughters-in-law joined the board of directors, along with a former senior Worcester employee and his then-wife.

At a Worcester Wreath board meeting around the time of the charity’s founding in 2007, company officials proposed to supply balsam fir wreaths with red American-made bows for $9 each. Family members “refrained from the discussion of conflicts, terms of the contract and voting,” according to records the charity provided to The Wall Street Journal.

The board agreed Worcester Wreath would continue indefinitely as sole supplier unless outside board members determined it didn’t offer a “reasonable and fair price,” according to the records and Karen Worcester.

“We’ve looked at it and said on the surface it doesn’t look like there’s anybody who can compete with Morrill Worcester,” said board member Ron Sailor, a retired colonel in the Maine Air National Guard.

Ruth Stonesifer, a charity director whose son was killed in a helicopter crash while in the armed forces in Pakistan in 2001, said her “primary concern” is to pay tribute to veterans.

L.L. Bean in the late 2000s accounted for 90% of Worcester Wreath’s business. The retailer was ordering $6.7 million a year in wreaths, centerpieces and other decorations, according to court records. The companies got into a legal tussle during the 2008 slowdown over who was responsible for unsold inventory. (A judge later awarded Worcester Wreath more than $650,000.) The next year, L.L. Bean didn’t order any Christmas products, leaving the firm in dire straits, according to Rob Worcester.

Relief came in the form of Wreaths Across America. In 2009, the charity ordered $1.1 million in wreaths. The following year it bought $1.9 million. “It allowed us to get our feet back under us,” said Rob Worcester, whose wife is on the charity’s board.

In correspondence with a local banker, Morrill Worcester presented the charity as one of the company’s most promising markets.

In 2007, the charity placed 33,000 Worcester Wreath wreaths at gravesites. So far this season, it has placed 901,000. On Dec. 12, Wreaths Across America volunteers placed wreaths on all 241,000 eligible graves at Arlington, the charity said.

Civic groups including American Legion branches use the wreaths as fundraisers, and Congress regularly declares a Wreaths Across America Day. Trucking companies and Wal-Mart Stores Inc. donate vehicles, drivers and fuel, and two Wal-Mart employees sit on the charity’s board. Wal-Mart declined to comment on the relationship between the charity and the Worcester family business.

“If you look at this only as a financial transaction, that isn’t the right frame of reference,” said Tobin Slaven, a charity spokesman and former son-in-law of Karen and Morrill Worcester. The family members “live and breathe this mission to honor as many veterans as possible. That’s not reflected in cold hard numbers.”

—Jim Oberman contributed to this article.

Write to Michael M. Phillips at michael.phillips@wsj.com