I appreciate all of the responses. Not what I'd hoped to
find out but it was what I'd suspected from the start. Now
I must be the bearer of bad news and must also make it clear
I am representing the non-profit's interests not theirs.

- quote -

Still gathering information on that...not even sure if they
had any such insurance...

- quote -

Amen to that.

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caj11[at]my-deja.com wrote:

- quote -


I also suppose they didn't keep their Directors' Liability
insurance current?

As others have noted, I think they are by virtue of their
position as directors/board members and suspect that the act
of resigning has not released them from potential liability
for actions/inactions during the time the _were_ on the
Board.

As for individual representation, if I were one of these
unfortunate individuals, I would certainly want to have
talked to somebody, at least.

For the unwary lurking, this should serve as a stark
reminder to not serve on the board of a nonprofit w/o making
sure of them having liability insurance and to not overlook
the importance of making sound fiduciary decisions.

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pleasedontemailme[at]dot.com wrote:
- quote -

Any employee or board member who had ability to draw on the
bank account and knew the payroll taxes were in arrears may
be individually liable for a penalty equal to the unpaid
balance of "trust fund" taxes. The liability is *not* for
the taxes, it is for a penalty equal to part of the unpaid
balance.

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aj11[at]my-deja.com wrote:

Much snipped

- quote -

Any employee or board member who had ability to draw on the
bank account and knew the payroll taxes were in arrears is
individually liable for the full balance.

I don't think that getting their own lawyers would be
helpful. The IRS is implacable in these cases.

-Crystal

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caj11[at]my-deja.com wrote:

- quote -

(snipped....)

- quote -

One factor to consider is that nowadays any offer must
include at least a 20% downpayment, non refundable. I doubt
IRS would take the 9000$ "promise to pay" from the state.

- quote -

They certainly could do this, but in order to affix the
blame so to speak, they would have to interview them all in
order to determine if any of them were what's called
"responsible parties."

- quote -

My suggestion here is to consult with a local Enrolled Agent
(EA) or CPA, one experienced in dealing with IRS on such
matters. For a referral to the former see the www.naea.org
webpage. Since this is a pro bono case, perhaps the referral
can treat it such also and give you 30 minutes of free time.
After all, he or she would be another in your local
network if you know what I mean.

ChEAr$,
Harlan Lunsford, EA n LA

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caj11[at]my-deja.com wrote:

- quote -

Withholding taxes is one of the things they're not at all
happy about, since there is personal liability for that
particular corporate debt. It's possible that they could be
more tolerant of employees of a nonprofit, but don't count
on it.

- quote -

Whoever they think had control, ability not to have allowed
that to happen will be liable. And there's really no
defense that I can recall. That's primarily the estate of
the founder and the director. But depending on the facts it
might not be limited to them.

- quote -

I don't think it's necessary at this point. Try dealing
with it on an entity basis first and see what you can do.
If you can get some money out of the people who are likely
to be held liable (if money is given to the corporation
perhaps they can at least write it off) you might be able to
get it resolved at somewhat of a discount, though probably
not much of one.

Stu

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Hello,

I am a tax attorney doing a little pro bono work for a
non-profit that is in bad financial shape and plans to shut
down. They can't file a plan of dissolution with their
state until all outstanding tax matters (state and federal)
are settled, and they have a rather big one with the feds
right now (they are current with state taxes far as I know).
While I am a tax attorney, this is outside my typical area
of expertise as I usually do work for large companies and
payroll taxes have never really been an issue for my usual
clients.

The facts are fairly simple:

In short, it is a non-profit, 501(c)(3) daycare center. A
good number of the children were from families on public
assistance and most enrollment fees were paid by the state.
Some parents did actually pay part or all of their
children's enrollment fees, but the lion's share of revenue
came from the state. Increased rent, operating expenses and
slow payments from the state (a lot of the usual red tape
and bureaucracy) forced the daycare center into insolvency.
They quickly fell behind on rent, couldn't meet payroll, and
eventually were forced to close. The founder of the center
(and head of the board of directors) fell ill and recently
died.

The director (person managing day-to-day operations) of the
center did a poor job of handling the books and paying
expenses. Any money that came in was used to pay the most
threatening creditors (not the IRS at the time). The
director claimed she was told it was not her responsibility
to pay the payroll taxes (debatable, but I'm sure it is not
relevant).

The daycare center fell in arrears to the tune of $43,000 in
federal payroll taxes. State payroll taxes were current.

Now, the entity exists only on paper and there is an interim
president who deals with correspondence concerning the
former center (mostly "intent to levy" letters from the IRS)
and is trying to negotiate all outstanding bills. Most
board members have resigned, although there are two other
board members who still consider themselves active.

The entity's assets consist of the following...

1) Toys, furniture, books, games and other equipment from
the center that could probably fetch $500 at best if they
were sold. More likely than not, the cost of transporting
them would eat most of that up and the IRS wouldn't be
interested anyway. Its likely another daycare center or
church could take them off the interim president's hands
(she is personally paying the cost of storing them). But
she does not want to dispose of anything until this matter
is resolved.

2) An unpaid receivable totaling $9000 owed to the daycare
center by the state for two disabled children who attended
the daycare for a couple of years (it was a special grant
that was awarded so as far as I know the daycare center does
have the right to the money). The center had a good number
of disabled children and received extra money from the state
for having them there. The interim president has been
trying to collect on this $9000 for more than a year, but as
usual, red tape and bureaucracy are holding things up. The
interim president would have no problem turning over the
receivable to the IRS to help settle this matter, as she
figures they would have an easier time collecting on it
given their stronger leverage.

My question is, what now? Do I just submit an Offer In
Comprimise on their behalf (the interim president will
probably have to pay the $150 fee out her own pocket) and
hope for the best?

I assume that if I offered to turn over the center's assets
as an offer, valued $9500 at the most I would be laughed at
by the IRS. But how would I do so on the OIC form, since
neither constitutes cold,hard cash?

Will the IRS go after the interim president, old director
and board members who were active at the time this center
operated and not paying its payroll taxes?

Are they jointly and severally liable for the $43,000?
Should they get their own individual lawyers?

Thanks in advance for your help.

---Chris A Johnson, Esq.

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