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Nonprofit Law/volunteer reimbursement

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QUESTION: We are an Ohio non-profit music boosters organization.  We have in our by-laws an expenditure to reimburse volunteers to our marching band program for fees for background check, student activity and cpr training, that are required by our administration and board of education.  This has been in place for the last few years, with our administration and board receiving a copy of our by-laws yearly.  This year we have been informed by administration that we can not give any volunteer more than $25.00 annually.  These licensing and background checks are good for 3 years and come to an access of $300.00, which looking annually would put us at $100.00.  Can you clear this up for us?  Thank-you

ANSWER: The IRS rule for what nonprofits may spend money on is similar to
the standard that the IRS uses when determining what is a valid
business expense for an ordinary business. For example, at:
http://www.irs.gov/pub/irs-tege/eotopich02.pdf the IRS refers
extensively to the regular business expense rules and applies them
to 501(c)(3) organizations. On page 32 we see "Reimbursements are
technically covered by Regs. 1.62-2.  However, for administrative
purposes, all TE/GE [Tax Exempt & Government Entities Division]
administrative personnel will treat reimbursements of a business
expense the same as if the expense were paid directly by the
employer, as long as the employee complies with the substantiation
rules..."

See page 41 of IRS Publication 535 at
http://www.irs.gov/pub/irs-pdf/p535.pdf starting in the first
column under the heading "Accountable Plans" which the organization
must have.  That section is written for employees but also applies
to volunteers.
See the section under "Volunteer Officers/Workers" at
http://www.irs.gov/charities/article/0,,id=131083,00.html
which is written specifically for Exempt Organizations and refers
to that Publication 535.
---Start of Excerpt--
A plan under which an employee or volunteer is reimbursed for
expenses or receives an allowance to cover expenses is an
accountable plan only if:

   *  There is a business connection for the expenses;
   *  The employee/volunteer adequately accounts for these
expenses within a reasonable period of time; and
   *   The employee/volunteer returns any amounts of excess
expenses within a reasonable period of time.
---End of Excerpt--

The issue which you asked about and which I would specifically address here is whether the reimbursements are for expenses where "there is a business connection for the expenses".  If there is such a business connection then there is no $25.00 limit.  

The issue is not whether you may provide hundreds of dollars to the workers, but whether the funds that you give to them are taxable as employment income. The IRS Publication 15-B discusses taxable and non-taxable fringe benefits and is available at
http://www.irs.gov/pub/irs-pdf/p15b.pdf

You will see on page 76 that when you pay for directly or reimburse workers for training such as cpr training that would be allowable as nontaxable fringe benefits, "For educational reimbursement to qualify as a working condition fringe benefit, the education must be job-related... The educational course must be job-related, and either maintain or improve job skills, or be expressly required by the employer or by law.   For the licensing, we see on page 73, "Employer reimbursements to employees for the cost of their professional licenses and professional organization dues may be excludable if they are directly related to the employee's job." I would believe that it is clear that the licensing is, from what you explained, required for his job.  Similarly the organization may pay for background checks and, therefore, it could reimburse the subject if he or she pays for the employer-required or state-required background check.

The IRS explains at http://www.irs.gov/pub/irs-pdf/p5137.pdf on page 12:
--- Start of Excerpt ---
All of the following are considered employees for purposes of
working condition fringe benefits:  Reg. 1.132-1(b)
 Current employees
 Partners
 Board of directors of the employer
 Independent contractors
 Volunteers
Although not employees for most employment tax purposes, independent contractors are treated as employees for this purpose and are therefore eligible to receive nontaxable reimbursements as
working condition fringe benefits.
---End of Excerpt---

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.

---------- FOLLOW-UP ----------

QUESTION: on your answer, THANK-YOU by the way, you noted page numbers I could gain information concerning our issue.  Page numbers 76 and 73, with all the links you have given me, I cannot come up with any that have these page numbers, and these are the ones that really directly deal with the required checks and licensing fees.
Again, THANK-YOU for the speedy response and I have printed what I could, but these particular ones would really come in handy.
Also the "Volunteer Officers/Workers" could not find that particular one either. Maybe I'm missing something.

Answer
You are welcome and sorry, the references to pages 76 and 73 are from
http://www.irs.gov/pub/irs-pdf/p5137.pdf

Also, on page 87. "A volunteer is an employee under common law if an entity has the right to direct and control the volunteer's performance, not only as to the results to be accomplished, but also as to the
methods by which the results are accomplished."

On page 12 we see:
--- Start of Excerpt ---
All of the following are considered employees for purposes of
working condition fringe benefits:  Reg. 1.132-1(b)
 Current employees
 Partners
 Board of directors of the employer
 Independent contractors
 Volunteers
Although not employees for most employment tax purposes, independent contractors are treated as employees for this purpose and are therefore eligible to receive nontaxable reimbursements as working condition fringe benefits.
---End of Excerpt---

The IRS has moved that Volunteer/Office Workers page to http://goo.gl/ypkKS

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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