We encourage our clients to involve their children and grandchildren in charitable giving because it creates stronger family connections and teaches the next generation valuable lessons about money and responsibility. Charitable activities create tremendous good for families and charities; however, contributors need to be aware of the risks to families and their wealth if giving is not carefully planned. To protect the families we work with, we offer proven processes that ensure that philanthropic work is done in compliance with the IRS and other regulators.
A few years ago, a client considered joining a local charity board that addresses a very important need in our community. Unfortunately, we discovered through due diligence that the non-profit organization had poor financial management and lax board oversight, so my client declined the invitation. Later that year, the non-profit failed, and because government funds were involved, board members were scrutinized by the regulators and the community. Good intentions inadvertently created risk to those involved financially, and generous givers found that their reputations were impacted.
Please also be aware that you may be at risk if you or your family members are volunteer board members for a Non-Profit Entity with employees. The good news is that Congress recognizes your generous deeds, and does not want to punish you if the Non-Profit has unremitted payroll taxes. IRC §6672(e) states that a “volunteer” should not be held personally liable for unpaid employment taxes where he or she is serving in an honorary capacity, does not participate in the day-to-day or financial operations, and does not have actual knowledge that the taxes are not paid. The IRS does not hold volunteers to the “should have known” standard it applies to employees. The bad news is that the Justice Department and the Courts have taken a very restrictive reading of this statute. If you are a check signer, even infrequently, or approve financial reports, expect to be treated harshly outside the protection of this statute. If you discover that your organization has not paid its withholding taxes you should (1) resign your office immediately in writing (2) refuse to sign any check or approve any action (3) report the entity to the IRS in writing.
You and your family members need to research your chosen charities before you take on a leadership role. Investigative processes will help ensure that you are better stewards of your family wealth.
Tim Scannell, CPA, CFP TM provides Personal and Business Tax Planning, Estate Planning, Investment Management, and Generational Wealth management to his clients. “We deliver proactive, objective advice, plans and solutions enabling our clients to reach their unique family goals “.
Keith Wolak, CPA is a partner at Hoeppner Wagner & Evans. Keith is a Board Certified Indiana Trust and Estate Lawyer, as certified by Trust and Estate Specialty Board. Hoeppner Wagner & Evans LLP is a law firm with offices in Merrillville and Valparaiso. Visit our website www.hwelaw.com for more information. DISCLAIMER: This publication is not intended to be legal advice but is presented for informational and educational purposes only. The facts and circumstances of a specific legal issue are unique and you should seek legal advice for your specific questions or concerns. No attorney-client relationship is created.