Addressing Volunteer Liability and Tax Concerns in Nonprofit Organizations
Posted by Sarah Hopkins on May 01, 2024
In the realm of nonprofit leadership, comprehensive risk management stands as a primary responsibility. While due diligence is commonly exercised to safeguard facilities, assets, staff, and clientele, it's crucial not to overlook the legal and tax liabilities potentially faced by volunteers. Despite the protections afforded by the federal Volunteer Protection Act of 1997, volunteers remain vulnerable to legal action and tax obligations while serving your organization.
One of the most important responsibilities for nonprofit leaders is to manage risk effectively. Besides taking care of the facilities, assets, staff, and clients, it's also essential to pay attention to the legal and tax issues that volunteers might encounter. Even though the federal Volunteer Protection Act of 1997 gives some shield to volunteers, they can still face legal action and tax duties while working for your organization.
State-Specific Considerations
While the Volunteer Protection Act offers a degree of defense for volunteers within their scope of duties, liability exposure can vary significantly across states. Many states have enacted complementary legislation to shield volunteers, yet nuances prevail, encompassing diverse limits, conditions, and exceptions. These may range from comprehensive coverage in the absence of gross negligence to limitations predicated on the nonprofit expressly assuming liability in its articles of incorporation.
However, it's imperative to recognize that volunteer protection laws do not obviate the necessity for nonprofits to procure suitable insurance coverage. Some state statutes explicitly mandate nonprofits to secure insurance, underscoring the importance of comprehensive risk mitigation strategies.
Insurance Protocols
Mitigating risk necessitates the procurement of general liability insurance tailored to encompass volunteers, alongside directors and officers liability insurance. Organizations engaging volunteers in vehicular operations should ascertain the extent of coverage under their auto insurance policies. Larger entities may contemplate amending bylaws to incorporate broad indemnification clauses for volunteers, especially when claims exceed insurance thresholds.
Moreover, instituting robust processes and protocols to manage risks associated with volunteer activities is advisable. Initiatives such as stringent volunteer screening, tailored training programs, and delineated guidelines for client-facing interactions can significantly mitigate potential harm or injury risks.
Tax Implications and Compliance
Beyond legal liabilities, nonprofits must remain vigilant regarding inadvertent tax implications arising from volunteer activities. Providing volunteers with benefits beyond reimbursements for out-of-pocket expenses may inadvertently generate taxable income. It's imperative to educate volunteers on the tax implications of reimbursement practices, ensuring compliance with federal and state tax regulations.
Transparent communication regarding expense reimbursement procedures, coupled with clear documentation requirements, serves to safeguard both volunteers and the organization from unintended tax liabilities. While these measures may seem burdensome, they are essential for compliance and risk mitigation.
Safeguarding Mission and Stakeholders
Volunteer risk profiles vary across nonprofits, with heightened concerns for organizations involved in medical services or serving vulnerable populations. Even seemingly mundane tasks like transportation can precipitate legal challenges. Therefore, proactive measures to mitigate volunteer risks are indispensable to uphold organizational integrity and fulfill mission objectives.
Consulting legal counsel for tailored guidance and ensuring adherence to regulatory requirements is paramount in navigating the intricate landscape of volunteer management within nonprofit organizations. By prioritizing risk management protocols, nonprofits can safeguard both volunteers and the organization's overarching mission.
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Sarah started her career with Lumsden McCormick as a tax intern and now works in the audit and assurance department, where her primary focus is accounting, auditing, and tax matters related to nonprofit organizations and governmental entities. She has significant expertise working with exempt organizations including private and public foundations, primary, secondary, and higher educational institutions, auxiliary organizations, and community colleges in the areas of accounting for and compliance with diversified investment portfolios, tax compliance, and consulting, including unrelated business income and sales tax, information returns, financial reporting, and compliance with Yellow Book and Uniform Guidance.