There are lots of places NPOs can get themselves into trouble by violating rules they didn’t know about.
Katie Thomas, CPA, has a great survey of a few places that can cause problems for NPOs in her post, You Don’t Know What You Don’t Know, at the Nonprofit GPS blog. She mentions:
- Taxes on raffle prizes
- Nondeductible portion of special event tickets
- Nominal gift cards
- Donated cars
She has a superb, brief recap of the problem with giving gift cards to volunteers:
Nominal gift cards – if you give a volunteer a gift card or cash, they cease being a volunteer and become an employee. This is especially important if you have a part of your operations, like a thrift store, that are exempt from UBIT because the activities are conducted primarily by volunteers. It also means you should be giving them a W-2 and withholding taxes. Instead, if you want to give volunteers a gift to express your gratitude – consider something non-monetary.
Read the full post. It is a quick, helpful read of stuff that maybe you didn’t know you didn’t know.
Those gift cards are a huge danger. Let me give you a survey of the cascade effects:
- giving more than a very tiny amount makes a volunteer an employee, then
- there should be W-2s and I-9s on file, then
- there should be withholding taken out and paid to the federal & state governments, then
- the thrift store’s no longer exempt from UBIT, then
- a 990-T should be filed, and then
- taxes should be paid on the UBIT.
Each of those consequences has reporting requirements, takes money and time to comply with, and has penalties for failure to report.
Oh, then there’s also
- unemployment insurance,
- wage and labor issues such as minimum wage & overtime,
- child labor laws,
- compliance with internal employment policies, and
- potential problems from increasing the employment count and crossing any one of a variety of thresholds which would trigger additional legal requirements.
Things can go downhill fast. Be careful.
I discussed this earlier here, and linked to a post by Corey Pfaffe. I also gave an illustration of the cascading effects of rewarding youth for helping out at a fundraiser.