Can board members be responsible for a nonprofit’s employer taxes?

taxCheck

If the IRS rules that a 501c3 nonprofit organization has misclassified its workers as independent contractors instead of employees, and the back taxes, fines, and/or penalties exceed the resources of the organization, what happens? Is it possible that the membership of the organization and/or members of the board could be financially responsible?

Lisa

Lisa,

Yes, the board members can be held personally responsible for employment taxes owed by a nonprofit organization. That’s why many nonprofits with employees have Director and Officers insurance.

Here’s a website that discusses paying employer taxes. (Employer taxes are slightly different from what you asked, but its still a tax/fine imposed by the IRS or state govt).

https://nonprofitquarterly.org/governancevoice/5516-not-paying-your-taxes-your-board-could-be-personally-liable.html

The author, a nonprofit attorney,  states

“If a nonprofit fails to pay taxes, the IRS may go after individual board members and executives to repay the money.…The IRS doesn’t want to discourage service on the boards of charitable organizations. But the IRS wants its money and will get it any way it can and from whomever it can prove was a responsible person.

Board members and senior executives of any charitable organization should be vigilant in ensuring that an organization is current in all its payment obligations to taxing authorities.”

Carol Topp, CPA

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