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to file the annual information return or filing an incomplete return is
subject to a penalty under IRC §6652(c)(1)(A). A penalty of $20 per day
is imposed for failure to file. The maximum penalty is the lesser of
$10,000 or 5% of gross receipts for the year. No penalty is imposed if
reasonable cause can be shown.
For non profit organizations with
$1,000,000 or more in gross receipts the penalty for failure to file
timely or to include correct information is $100 per day, up to $50,000
maximum.
100% Penalty, Volunteer Workers: The Trust
Fund Recovery Penalty [IRC §6672] for failure to withhold and remit
payroll taxes will not be assessed against the following: unpaid
volunteers, volunteer trustees, or directors of a
Intermediate Penalties
The Taxpayer Bill of Rights II of 1996
created intermediate penalties for excess benefit transactions with
"disqualified persons" and private inurement within
— Private Inurement: Shareholders
or individuals share in the net earnings of the non profit entity.
— Excess Benefit: Amount by which
the economic benefit provided by the non profit for services or property
exceeds the FMV of the consideration received.
A Disqualified Person is a person, family
member of that person, or 35% controlled entity in a position to exercise
"substantial influence" over the non profit organization’s affairs.
A person with substantial influence is
anyone who:
 | Serves as a voting member on the non
profit organization’s governing body.
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| Has powers of the CEO, COO, CFO, or
Treasurer.
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| Has responsibility for managing the non
profit organization’s financial assets,
regardless of title.
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| Has material financial interests in
certain provider-sponsored non profit organizations. |
Previously, sanctions for these violations
resulted in loss of exempt status, but provided no recourse to punish
the people involved in the abuse. IRC §4958 imposes excise taxes on
both the individual who benefited, and on the
Penalties:
—Tier-1: For the
individual, the penalty is an excise tax equal to 25% of the excess benefit with no
maximum penalty. For non profit managers involved, the penalty is an excise
tax equal to 10% of the excess benefit with a $10,000 maximum.
—Tier-2:
If the abuses are not corrected within the taxable period, an
additional penalty tax of 200% of the excess benefit is imposed on
the individual.
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