Nonprofit Directors/Trustees Alert: Volunteer Chairman Held Liable for Nonprofit’s Unpaid Payroll Taxes

 

Following is part of a  blog that I strongly suggest that you, your colleagues and friends associated  with nonprofit or trustee organizations read carefully.  As you read it, pleas keep the following  in mind:

  • I think the situation presented here is more common than most directors/trustees think.   As a layperson, I am surprised that the court did not spread the fine among all the directors.
  • The chairman was clearly trying to support a nonprofit in trouble. Perhaps he was so dedicated  to the mission that he was trying to do everything possible to save it?
  • Not Shown here is the fact that, “[T]he chairman is burdened with proving that they (the IRS) are not correct.  … The law does not require the individual to have complete control over the finances, only what the court calls significant control.”  

For more insights in how to avoid such situations, review these items on my blog site. Other items also may be of interest  http://bit.ly/yfRZpz  .

Nonprofit Directors & Trustees: Are You Aware of the IRS 990 Form?
Attn: Crisis Planners – A Leadership Plan For a Nonprofit Organization in Trouble
What To Do About Weak Nonprofit Board Practices
Your Dysfunctional Nonprofit Board – What to Do
Nonprofit Management/Governance – Avoiding Fraud – Internal Controls

For the full blog see: http://www.mercadien.com/index.html


Nonprofit Directors/Trustees Alert: Volunteer Chairman Held Liable  for  Nonprofit’s  Unpaid Payroll Taxes   

by Sherise D. Ritter, CPA, CGFM, PSA

A recent tax court case held that a volunteer chairman of the Board of Trustees is personally liable for a nonprofit organization’s unpaid payroll taxes. This is a scary development as many chairmen have little control over the ways in which the nonprofit spends or does not spend its money. Fortunately, the court looks to the extent of the chairman’s involvement in the organization’s everyday activities to determine whether he or she  should  be  held  responsible for any unpaid taxes.

The recent tax court case involved the chairman of a nonprofit organization who had no authority to direct staff. While the chairman did advance loans to the nonprofit, he did not have any ownership interest in the nonprofit, never received a paycheck from the nonprofit, never hired or fired employees, never asked to see the books, never asked if  taxes  were  paid and did not supervise  employees.  However, the  nonprofit’s  charter  established that “[T]he   Board of Directors shall have full control over and shall authorize the exercise of all its corporate affairs. The chairman also found out about an earlier nonpayment of taxes by the nonprofit and loaned the organization funds to make the required tax payment.

At  some  point, the  chairman became more involved in the organization’s day-to-day operations, especially its financial operations. He endeavored to make the nonprofit economically viable and took over the check-writing processes. The chairman met payroll requirements, paid bills and took care of other financial business during his tenure at the helm of the nonprofit. He was not paid for this work. During his time writing checks and managing the nonprofit’s  finances, no  payment  was  made  to  the IRS for current or back  taxes.  The IRS  caught up with  the  nonpayment; and  after an investigation, charged the chairman to repay the back taxes on the “trust fund” portion of the taxes owed. The amount of total taxes for which the chairman was liable neared $200,000.

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