Corporate Law Personal liability of incorporator?

[jdbst56]

Last January I incorporated a non-profit corporation (church entity) in PA with the goal of starting a non-denominational church. As part of that process, I also obtained an EIN for the corporation from the IRS and listed myself as the responsible party. Shortly after incorporation I recruited a lead pastor who has been serving as the president/CEO of the organization, even though he was not formally named or elected to such office. There were no initial board members or officers (nor lead pastor) listed in the articles of incorporation despite the fact that the bylaws state the original board would be set forth in the articles. There has been over 100 people attending the Sunday morning services so the weekly offerings have been quite substantial. I have since become concerned by the lack of financial transparency with the lead pastor and the fact that there is no board to oversee financial decisions (salaries, budgets, etc) as outlined in the bylaws. After bringing my concerns to the attention of the lead pastor on multiple occasions with no action taken, I realized that I was at an impasse and decided to resign my volunteer role at the church and completely disassociate myself from it.

My question is what personal liability do I have, if any, at this point? My name is listed in the articles of incorporation as the incorporator but not as an officer or board member. My name was also listed as the responsible party with the IRS when I obtained the EIN. My biggest concern is the IRS coming after me if the lead pastor does not file the proper tax forms and have the correct taxes deducted for his salary. My other concern would be if the congregation would try to pursue legal action against me for failure of not establishing a board or negligence in not addressing the fact that the lead pastor was conducting activities in violation of the bylaws. Is there anything I could or should do to protect myself from such actions?

The bylaws state that the lead pastor must be elected by the membership but they have not been maintaining membership rolls. So it appears to me that there is no board or members and the pastor who is supposed to be a board member by virtue of his role is also not legitimate. I would assume that in order for them to fix this problem, they would have to establish membership, conduct a formal vote for the senior pastor, and then allow him to nominate board members and officers?

 

[disagreeable]

Generally, the law holds liable all listed Board Members of a non profit.

 

[Michael Wechsler]

This is true - and which is why the original poster should take care to ensure that matters are conducted properly. You can't serve as a member of the board of directors and claim that you have no responsibility and that your role is merely on paper. Your failure to take appropriate measures that would be prudent as a member of the board of directors might subject you to liability. Check out this section from the Internal Revenue Code with regard to liability:

§ 6671. Rules for application of assessable penalties
(a) Penalty assessed as tax
The penalties and liabilities provided by this subchapter shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes. Except as otherwise provided, any reference in this title to ''tax'' imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter.
(b) Person defined The term ''person'', as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

Also see this case. While this individual had closer ties than just a board member, the court seems to entertain the notion that he could have been found liable as a board member alone.

STEPHEN K VERRET, Plaintiff-Appellant,
v.
UNITED STATES OF AMERICA, Defendant-Appellee.

No. 08-40448.
United States Court of Appeals, Fifth Circuit.

Filed February 26, 2009.
Before: GARWOOD, DENNIS and PRADO, Circuit Judges.

PER CURIAM.[*]

Appellant in his appeal has demonstrated no reversible error in the district court's thorough and well considered February 14, 2008 memorandum opinion.

Appellant does not challenge on this appeal the district court's determination that he was a "responsible person" under section 6672. Admittedly, he became aware in November 2001 that the Hospital's payroll withholding taxes for the third and fourth quarters of 2001 were outstanding and unpaid. He was not only Chairman of the Hospital's Board of Directors but was also an essentially salaried and active paid consultant of the Hospital — at a rate of some $70 to $80,000 a year — and continued to receive this compensation from the Hospital and to be aware that the Hospital's third and fourth quarter withholding taxes were still outstanding while he was receiving such payments and diverse other Hospital employees and/or other creditors were being paid.[1] Nor does appellant argue on this appeal that he is exempted from liability under section 6672(e).

The judgment of the district court is

AFFIRMED.

 

[Michael Wechsler]

Note this statute which is referred to in the case and may shed some light on your situation.

6 USC § 6672 - Failure to collect and pay over tax, or attempt to evade or defeat tax

(a) General rule
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 or part II of subchapter A of chapter 68 for any offense to which this section is applicable.

.............

(e) Exception for voluntary board members of tax-exempt organizations
No penalty shall be imposed by subsection (a) on any unpaid, volunteer member of any board of trustees or directors of an organization exempt from tax under subtitle A if such member—
(1) is solely serving in an honorary capacity,
(2) does not participate in the day-to-day or financial operations of the organization, and
(3) does not have actual knowledge of the failure on which such penalty is imposed.
The preceding sentence shall not apply if it results in no person being liable for the penalty imposed by subsection (a).