Hi,
Most people join a board, council or commission as a civic obligation. They assume that if something goes wrong financially, it is the entity’s problem, and that the entity’s insurance and their own good faith will cover the rest.
That assumption holds for almost everything. There is one exception large enough to matter, and almost nobody serving is told about it.
If your entity withholds income tax and the employee share of Social Security and Medicare from staff paychecks and then fails to remit it, the IRS can assess the Trust Fund Recovery Penalty. It is not a fine calculated as a percentage. It is one hundred percent of the withheld amount, assessed personally against any individual the IRS treats as a responsible person who willfully allowed it to happen.
Two features make it genuinely dangerous rather than theoretical:
- “Responsible person” is about authority, not title. It turns on who could have directed the payment. A board member who signs checks, approves disbursements, or has authority over which creditors get paid can fall inside it. Being unpaid, part time or a volunteer does not by itself put you outside it.
- “Willful” is a low bar. It does not require intent to cheat anyone. Knowing the withheld money was not remitted, and approving other payments anyway, can be enough. Choosing to keep the lights on and the payroll running while the deposit slips is exactly the fact pattern that gets assessed.
And it follows the person. The penalty does not disappear if the entity later pays, dissolves, or reorganizes, and it is generally not dischargeable in bankruptcy.
There are three other places board service creates personal exposure, all of which get assumed away:
- A public official bond protects the entity from you, not you from anything. This is the single most common misunderstanding at the table. If a bonded official causes a loss, the surety pays the entity and then pursues the official. It is not personal coverage.
- Indemnification has conditions. Most statutes and bylaws indemnify members acting in good faith within the scope of their duties. Willful misconduct, knowing violations and acts outside your authority sit outside that, which is precisely where a claim will be aimed.
- Open meeting and conflict rules carry personal consequences in some states, including fines against the individual member who knowingly participated, separate from anything the entity faces.
None of this is a reason to stop serving. It is a reason to ask four questions, all of which are ordinary and none of which should cause offense:
- Are payroll tax deposits current? Ask for confirmation at a meeting, and make sure the answer is recorded in the minutes.
- What exactly does our coverage include? Specifically whether there is directors and officers or public officials liability cover, what it excludes, and whether defense costs are inside or outside the limit.
- Am I recorded as abstaining where I have a conflict? An abstention that is not in the minutes did not happen.
- Are we seeing real monthly financials? A member who receives an annual summary has no practical way to know the answer to the first question.
This is the kind of thing we work through with governing bodies alongside the audit:
- Audit, Single Audit and Yellow Book engagements, and audit finding remediation
- Full-service payroll for public entities, including deposit compliance and retirement system reporting
- Board and council ready reporting built so oversight is possible, not just documented
- Internal control design, ACFR and AFR preparation, and fund accounting bookkeeping
Reply to this email by Friday and we will set up a free 15-minute call with one of our senior government specialists. Tell us whether your board currently sees payroll tax deposit confirmation in its monthly packet, and we will tell you on the call what your members are actually carrying.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com