Section 6672 of the Internal Revenue Code imposes a 100% penalty on any `responsible person' for so-called trust fund taxes, that is, employment taxes (social security payments and withholding, etc.) required to be collected from an employee's wages and paid to the IRS by the employer. In the past, it has been possible for the IRS to hold a volunteer board member of a tax-exempt employer liable for this penalty.

As part of the Taxpayer Bill of Rights 2 of 1996, however, this liability has been removed for board members of exempt organization employers who: 1) serve solely in an honorary capacity; 2) do not participate in daily or financial operations of the employer; and 3) have no actual knowledge of the failure to pay trust fund amounts. However, a volunteer board member may still be liable if no one else in the organization is a `responsible person.'

The full text of Section 904 of the Taxpayer Bill of Rights 2 of 1996 is reproduced below:

SEC. 904. VOLUNTEER BOARD MEMBERS OF TAX-EXEMPT ORGANIZATIONS EXEMPT FROM PENALTY FOR FAILURE TO COLLECT AND PAY OVER TAX.

(a) IN GENERAL- Section 6672 is amended by adding at the end the following new subsection:

`(e) EXCEPTION FOR VOLUNTARY BOARD MEMBERS OF TAX-EXEMPT ORGANIZATIONS- No penalty shall be imposed by subsection (a) on any unpaid, volunteer member of any board of trustees or directors of an organization exempt from tax under subtitle A if such member--

`(1) is solely serving in an honorary capacity,
`(2) does not participate in the day-to-day or financial operations of the organization, and

`(3) does not have actual knowledge of the failure on which such penalty is imposed. The preceding sentence shall not apply if it results in no person being liable for the penalty imposed by subsection (a).'.

(1) IN GENERAL- The Secretary of the Treasury or the Secretary's delegate (hereafter in this subsection referred to as the `Secretary') shall take such actions as may be appropriate to ensure that employees are aware of their responsibilities under the Federal tax depository system, the circumstances under which employees may be liable for the penalty imposed by section 6672 of the Internal Revenue Code of 1986, and the responsibility to promptly report to the Internal Revenue Service any failure referred to in subsection (a) of such section 6672. Such actions shall include--

(A) printing of a warning on deposit coupon booklets and the appropriate tax returns that certain employees may be liable for the penalty imposed by such section 6672, and

(B) the development of a special information packet.

(2) DEVELOPMENT OF EXPLANATORY MATERIALS- The Secretary shall develop materials explaining the circumstances under which board members of tax-exempt organizations (including voluntary and honorary members) may be subject to penalty under section 6672 of such Code. Such materials shall be made available to tax-exempt organizations.

(3) IRS INSTRUCTIONS- The Secretary shall clarify the instructions to Internal Revenue Service employees on the application of the penalty under section 6672 of such Code with regard to voluntary members of boards of trustees or directors of tax-exempt organizations.