Unpaid directors, officers and volunteers of a Missouri nonprofit corporation enjoy immunity from certain acts other than those that are intentional or reckless. However, that immunity works only with regard to tort liability, not statutory liability that is imposed by the Internal Revenue Code. Recently, a tax-exempt Section 501(c)(3) Missouri nonprofit corporation found itself with a problem of its own making. Because of cash-flow problems, payroll taxes were not remitted to the Internal Revenue Service within the time frame permitted under law. In fact, they remained unpaid for in excess of a year. The IRS stepped in and not only commenced an administrative proceeding against the organization but shortly thereafter sent out letters to all of its then-current directors as well as to those serving when the non-payment of taxes occurred. The thrust of the IRS notice was the possibility of the liability extending to the directors as well as officers for the nonpayment of those employment taxes.
Under the Internal Revenue Code, officers, directors and other staff, regardless of whether they are volunteers, may be liable if they had control over the disbursement of funds and caused the disbursement of funds to occur other than to the IRS for the remittance of withheld and employer-share employment taxes. While the good intentions of the organization’s purposes may have persuaded those individuals who served as officers and directors to volunteer in the first place, those good intentions do nothing to prevent the full reach of the IRS in its pursuit of withheld employment taxes. Alignment with the financial “rules of the road” is one of the Board of Directors’ responsibilities that must not be abandoned under any circumstance.
Understanding your obligations as well as your rights as a director or officer of a nonprofit organization is critical for the organization to comply with the law as well as to limit your liability if you are serving as an officer or director of a nonprofit. Relying solely upon the representations of those who have the authority may seem to be logical, especially in a volunteer situation, but such is not the law in terms of liability for unpaid taxes. Make sure you understand and are taking your Board of Directors’ responsibilities seriously, and you’ll be fine.