24 THE QUEENS COURIER • SEPTEMBER 3, 2020 FOR BREAKING NEWS VISIT WWW.QNS.COM
TAX TIPS
Serve On Nonprofit
Board, Face
Tax Liability?
BY JOHN SAVIGNANO, CPA
Serving on the board of directors of a nonprofit can be rewarding,
but not if you end up paying for the organization's tax problems.
Your first reaction might be to say what tax problems, for aren't
nonprofits, especially public charities, tax exempt? Not entirely.
For example, nonprofits that have employees still have to pay
payroll taxes. And the IRS takes payroll tax liabilities pretty
seriously. As with any employer, if the charity doesn't pay, the IRS
has the ability to go after the individual officers, directors or check
signers who could have done something about it. So, don’t sign
checks and expect to skate if the IRS comes along. You can face
personal liability for employment taxes. Even the U.S. Supreme
Court may turn a deaf ear, letting stand a whopping $11 million in
IRS penalties in Davis v. United States.
If you are labeled a responsible person, it means the IRS can
pursue you personally for payroll taxes if the company fails to pay.
The IRS can assess a Trust Fund Recovery Assessment, also known
as a 100% penalty, against every responsible person. The IRS does
this quite regularly, and has a regular system down, starting with
Section 6672(a) of the tax code. Anyone with employees is expected
to know that tax withholding must be taken, and the money must
be promptly sent to the IRS. The IRS views this as a trust fund that
belongs to the IRS. You can be liable even if have no knowledge the
IRS is not being paid.
The IRS tends to be unforgiving and the dollars add up quickly.
And remember, charities and other nonprofit organizations with
employees have to pay payroll taxes too. What's more, even if
you're an unpaid volunteer you can be stuck with personal liability.
Take the case of Anthony Cuda, United States v. Cuda and Dankis.
Mr. Cuda was the operations director of Seneca Area Emergency
Services, Inc. (SAES), a nonprofit providing ambulance and
emergency medical services. It turned out that the office manager
was embezzling and stopped paying bills—including the IRS. Poor
Mr. Cuda was responsible for overseeing day-to-day operations,
had authority to sign checks and to provide input on prioritizing
SAES's bill payments.
The IRS located Cuda and told him to pay up. Cuda tried
everything to get out of it, arguing that:
1. He didn't know the taxes weren't being paid;
2. SAES was going bankrupt, and actually did file for bankruptcy
protection; and
3. It was the CFO who should have collected and paid the taxes,
not Cuda.
But the court rejected all of these arguments. The court said it
wasn't in the business of assigning comparative fault. Each
responsible person was 100% liable. Since Cuda was the one in
court at the moment, he had to pay. When there are multiple
officers, directors or signers whom the IRS is chasing, each
responsible person in the IRS cross hairs tries to make sure
someone else pays before they have to. Since the penalty is 100% of
the taxes, the IRS can collect it only once.
John Savignano is a partner with Savignano Accountants &
Advisors located at 47-46 Vernon Blvd., Second Floor, in Long Island
City. If you have any questions or require additional information,
please call John at 718-707-0955.
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