Nonprofit Law/Directors' expense reimbursement
QUESTION: I did see this topic addressed in 2012 but I was not fully satisfied with the response. If I am an unpaid volunteer director of a non-profit, why am I considered an independent contractor and have to get a 1099 MISC as part of expense reimbursement?
Do I then have to "create" an enterprise on schedule C (which would have no income of course) to use to report the expenses that in the first place resulted in the 1099 "income"? And does that raise audit issues? Travel expenses, perhaps even $thousands for a major conference, say, but NO income associated with that enterprise?
I just don't see being a volunteer board member as having an independent contractor relationship with that entity.
Thanks in advance.
ANSWER: The IRS explains at http://www.irs.gov/pub/irs-pdf/p5137.pdf
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." But, 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
• Board of directors of the employer
• Independent contractors
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---
Therefore, you would be receiving a W-2 (as a employee) and not a 1099-Misc if, in fact, you received payments above allowed non-taxable reimbursements. 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 if the payments are not to be taxable. That section is written for employees but also applies to volunteers. See the section under "Volunteer Officers/Workers" at
which is written specifically for Exempt Organizations and refers
to that Publication 535.
Attorney at Law
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: Thanks so much. So -- to put it very concretely. I serve on BOT of a non-profit California Hospital. They have made available an education conference in a nice location. I anticipate I will have expenses of about $2000. They have already sent me a 1099 to fill out and said that reimbursed expenses will later be reported to me as 1099 MISC income.
I do not work for this hospital and have no employment relationship with it. Should I suggest to them that this is most appropriately handled as an "employee expense reimbursement" -- in the same way they would indeed reimburse an employee for such costs -- rather than a more complicated 1099 situation requiring me to both both the expenses and the income that represents the expense reimbursement, on some business entity that must be created to the shell for both things?
I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. Nonetheless, I gave you some information about reimbursements. But, as to your specific situation, I would not be giving advice in this forum. I would also need to gather more information. If you want to hire me for a consultation, send me an email directly to my email address below and I will quote you my fees.
Attorney at Law