Wednesday, April 02, 2003

The Law Will (Sometimes) Protect a Volunteer

In a recent opinion, the Bankruptcy Court for the Middle District of Pennsylvania relieved the president of a non-profit organization of any responsibility for unpaid employee withholding taxes.

The individual in question became president of a social club at a time when its financial affairs were already in turmoil. During the early stages of his tenure in office, the organization continued to fail to pay withholding taxes on employee wages. However, the court accepted the taxpayer's assertion that he did not know that the taxes were not being paid and that, once he discovered the problem, he ordered the payroll service to be certain that all payroll taxes were properly withheld and paid over.

One fact clearly colored the court's approach to this case--the taxpayer did not profit from the failure to pay over the taxes. As the court noted, he was "an unpaid officer of a non-profit organization [who] had nothing to gain by keeping the club afloat while putting himself at great risk of substantial tax liability."

The underlying rationale of the opinion is found in a footnote where the court quotes from another case dealing with proposed Section 6672 claims against officers of a non-profit organization: "This matter portrays the government at its heartless, rigid, and Orwellian bureaucratic worst. The plaintiffs in this action were engaged in selfless, dedicated charitable activity. They gave of their time and themselves to assist those in need. They received no personal gain other than the satisfaction derived from their charitable endeavors. The compassionate federal government, and particularly the well known, warmhearted Internal Revenue Service, has chosen to reward them with personal liability for the nonpayment of withholding taxes."

The name of the recent case is In Re: E. Harry Lartz. The opinion is not publicly available on the web, but I will supply a copy upon request.

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