The feds found more than 64,000 tax-exempt organizations owed nearly $875 million in back taxes as of June 2012. Most of the unpaid bill (69%) represented unpaid payroll taxes but unrelated business income and excise taxes were also a factor.
All in all, Treasury found about 1,200 tax-exempt organizations owed more than $100,000 each. Drilling down on what the inspectors considered the 25 worst offenders, the feds found $25 million in tax delinquencies, some dating back a decade.
As a result, the IRS imposed the Trust Fund Recovery Penalty on several officers of those organizations, all of which are 501(c)(3) entities. That levy is imposed on the “responsible person” in an organization that hasn’t paid its taxes. And the penalty is huge—100% of the unpaid amount levied against the individual.
Think you’re immune because you’re ‘just’ a volunteer? There is an exception in the law for unpaid volunteers serving in an honorary position. But that exception doesn’t hold if the feds can’t identify another “responsible person” within the delinquent organization.
The silver lining here is that the feds found more than 96% of nonprofits have been doing the right thing. While that’s encouraging, the report fires the kind of warning shot that should prompt nonprofit executives to take a close look at their practices.
Start by reviewing your records to make sure your organization is current on all its tax bills. Pay particular attention to those payroll taxes. Then take a close look at your internal controls to identify that “responsible person.” Ask yourself if the finding is what you intend and whether the person knows they could be on the hook if anything goes wrong. This is also a good time to check your directors and business officers insurance coverage.
While the Treasury and IRS disagree on next steps, this is the kind of issue that likely won’t go away. Uncle Sam has a long arm and an $875 million unpaid bill is enough to get his attention. Read the full report to learn more: http://www.treasury.gov/tigta/auditreports/2014reports/201410012fr.pdf.