In this Issue:
- Tax Court Case: Using Volunteers No Excuse for Late Filing Form 990
- Maine Human Rights Act Case
Welcome to the latest issue of the Maine Nonprofit Law E-Bulletin. I send E-Bulletins 3 or 4 times per year to provide updates and analysis on legal and policy matters respecting Maine nonprofit organizations. I do my best to keep the messages brief, timely, and useful to nonprofit staff, board members, volunteers, advisors, and donors. At the same time, no one may rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.
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Tax Court Case: Using Volunteers No Excuse for Late Filing Form 990
A recent United States Tax Court Case highlights the importance of making sure the annual Form 990 (or 990-EZ or 990-PF, as applicable) is filed on time. Federal law imposes significant penalties for a late-filed Form 990. For organizations with annual gross receipts of $1 million or below, the penalty is $20 for each day late with a maximum penalty of the lesser of $10,000 or 5% of the organization’s gross receipts for the year. These penalties may be waived if the organization can demonstrate “reasonable cause.”
In Child Adult Intervention Services, Inc. v. Commissioner, T.C. Memo. 2012-94 (March 28, 2012), the Court rejected an organization’s claim of reasonable cause. For 13 years in a row, the organization filed its Form 990 late, often after receiving a notice form the IRS. The IRS did not pursue penalties in all of those years except the last two, when it assessed penalties totaling $12,000.
The organization’s founder and president earned considerable compensation from the organization (upwards of $100,000). His wife, a volunteer, was responsible for filing the Form 990, but claimed to suffer from a variety of mental and physical impairments resulting from a 1993 car accident.
The Tax Court first held that reliance on an agent, volunteer or professional, does not constitute reasonable cause in and of itself. The Court emphasized that it was the officers’ responsibility, not those of an agent, to see that the Form 990 is filed on time, and thus the illness of the President’s wife was immaterial. The Court further noted that the repeated late filings over the years demonstrated willful neglect, and precluded a finding of reasonable cause. Finally, the Court ignored the organization’s argument that the penalties would cause it financial hardship, because the organization had not been forthcoming in response to the IRS’ requests for financial information and a payment schedule.
Maine Human Rights Act Case
A recent Maine Supreme Court case involving a nonprofit organization is a useful reminder to nonprofit employers of their responsibilities under the Maine Human Rights Act with respect to employees claiming a physical or mental disability. Section 4553(2)(E) of the Act defines discrimination to include “Not making reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability who is an applicant or employee, unless the covered entity can demonstrate that the accommodation would impose an undue hardship on the operation of the business of the covered entity.” Furthermore, Section 4613(2)(B)(8), provides that for employer with 15 or more employees, no damages may be awarded in a reasonable accommodation case if the employer “demonstrates good faith efforts, in consultation with the person with the disability who has informed the covered entity that accommodation is needed, to identify and make a reasonable accommodation that would provide that individual with an equally effective opportunity and would not cause an undue hardship on the operation of the business.”
The Law Court interpreted this good faith provision in Kezer v. Central Maine Medical Center, 2012 ME 54. In short, the Court held that although this provision established an affirmative defense for the employer, it does not impose upon the employer a duty to consult with an employee seeking reasonable accommodation. The opinion also addresses the applicable statute of limitations when the employee brings multiple complaints to the employer.
Section 4553-A, a 2007 amendment to the Act, defines what is and what is not a “physical and mental disability.” Useful information on handling requests for reasonable accommodation can be found here.
Nonprofit organizations should understand that employment-related disputes are likely to be their highest area of liability exposure. Thus, employers with one or more employees are strongly encouraged to purchase employment-practices liability insurance coverage, which is usually included in a Directors and Officers (D&O) policy.
CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.