Why Not-For-Profit CEOs are Leaving

Jurgita Kalina, CPA

The Chronicle of Philanthropy conducted a wide-ranging survey of CEOs and found that about one-third are planning to leave their jobs within two years, with 22% likely to leave the not-for-profit industry entirely. Although job satisfaction is high, 88% of the respondents describe the demands on them as “never-ending,” and almost 60% struggle with work-life balance.

According to the Chronicle, almost all of the CEOs surveyed agree that the benefits of their jobs outweigh the negatives (97%) and that they feel tremendous satisfaction in their jobs as not-for-profit leaders (96%). However, 90% also feel tremendous pressure to succeed, which helps explain their impending exodus. Retirement ranks as the top reason for their departures. Other leading reasons include salary and the challenge of finding resources. Notably, about 40% of respondents say their boards are not engaged.

Employee volunteerism on the rise

An Association of Corporate Citizenship Professionals survey reveals that employee participation in volunteer activities in the workplace increased in 2023, with companies offering a greater variety of options and time off for volunteering. In addition, in-person and virtual volunteering options have become standard in corporate volunteer programs as remote work has become more common.

61% of the corporate social responsibility and environmental, social and governance professionals surveyed reported greater employee participation rates. Only 14% experienced drops in participation. Companies boosted their rates by providing, among other options, increased opportunities for group volunteering (59%) and more focus on in-person volunteering opportunities (48%). Some also have added more options for individual volunteering and increased their employee engagement budgets in 2023. Almost a third of those surveyed also introduced or increased skills-based volunteering.

For more information, contact Jurgita Kalina at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.

Not-For-Profit Liable for Employment Taxes on Founder

Kenneth L. Tornheim, CPA, CFE

Does your not-for-profit organization pay one or more of your officers to provide services? If so, you will need to consider the risks. Recently, a court found a not-for-profit organization responsible for unpaid employment taxes on an officer’s compensation.

Close ties

The not-for-profit organization in question was founded by a real estate developer and author of multiple books on real estate development. In the years preceding the not-for-profit organization’s inception in 1980, the founder held seminars on real estate development as a sole proprietor. He also served as a corporate officer of the organization from inception through the relevant time periods in the case.

The organization was inactive almost every year until 2010, when the founder developed an online real estate development course. He had complete control over it, was the only instructor and often worked more than 60 hours a week on it. The course was the organization’s only activity and tuition payments were its sole source of income.

For the tax year ended May 31, 2015, the founder signed the organization’s IRS Form 990, identifying himself as its treasurer. The not-for-profit issued him a Form 1099-MISC “Miscellaneous Information” reporting $120,000 paid to the founder in 2014. The organization never filed quarterly employer tax returns specifying payments made to the founder as salary or wages for services provided as an employee.

After the IRS selected the not-for-profit organization for audit, the organization asserted that the founder was not (and never had been) an employee for purposes of federal employment taxes. The IRS disagreed and the not-for-profit organization turned to the U.S. Tax Court for relief from the Service’s employee determination and the related tax bill.

Court analysis

As the Tax Court noted, the term “employee” for tax purposes includes any officer of a corporation, unless the officer:

1. Does not perform any services or only performs minor services; and
2. Neither receives, nor is entitled to receive, any direct or indirect remuneration.

An officer can operate as both an employee and an independent contractor, as long as clear distinctions are drawn between the dual roles. When an officer’s services are responsible for the entirety of the organization’s income, though, and the officer receives remuneration, that individual is classified as an employee. The founder provided services that represented the not-for-profit organization’s entire source of income and was paid for those services.

The not-for-profit organization nonetheless argued that the founder provided services as both an employee and an independent contractor. The only evidence of this, though, was the Form 1099-MISC and the founder’s testimony. Without other evidence, such as a written contractor agreement, the form and the “self-serving” testimony warranted little weight, the court said.

It also rejected the assertion that the minor services exception applied, finding he performed significantly more than that for the organization. He worked on all aspects of the not-for-profit organization’s only activity and the organization paid him for those services.

Finally, the court deemed the argument that he could not be an employee because the organization did not have the right to control him unpersuasive. The founder chose to accept both the benefits and burdens of the corporate form, including its separate tax identity. Tax law does not permit a taxpayer to use his dual role as an officer and a service provider as grounds to ignore the imposition of federal employment taxes on wages.

Time for caution

The not-for-profit organization in this case may have been atypical in some ways, but it highlights one of the potential pitfalls when lines are blurred for officers of an organization. If you have officers providing services, let’s further discuss the proper treatment for tax purposes.

For more information, contact Ken Tornheim at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.