Ethical Educator

Accounting for Good Intentions
School Administrator, October 2022

Scenario: When schools operated remotely at the start of the pandemic, a central-office supervisor set up a GoFundMe account for the hourly employees affected by the shutdown and subsequently distributed proceeds to them. At year’s end, the GoFundMe payment was reported by the district as consulting income, resulting in tax liabilities for the employees, who cannot easily afford to pay.  A young accountant does not believe the IRS intended to tax such modest gifts, but her supervisor asks her to take no further action. The accountant writes to the IRS anonymously about what she considers an error by the school district that is harming low-wage workers. A few days later, the accountant feels she should let someone know so she e-mails the superintendent, who had initially signed off on the GoFundMe plan without much thought. What should the superintendent do?

Maria Ott:

“No good deed goes unpunished” seems like an appropriate commentary for the superintendent who is dealing with fallout from this charitable action by a well-intentioned supervisor. It is likely the GoFundMe account was genuinely appreciated when the funds were distributed to the impacted hourly employees. A superintendent should expect members of the leadership team to take proactive steps during a crisis, and the central-office supervisor stepped forward to help.  The superintendent signed off on the GoFundMe plan without much thought.  During a crisis leaders act. This superintendent is clearly a leader who did what was needed and will take appropriate action to resolve the unexpected outcome.

When the district reported the funds as consulting income, the superintendent should have been notified as this placed a new burden on people already negatively impacted by the shutdown and loss of wages. The superintendent would likely have instructed the district business office to explore alternatives with the IRS.  

As an important caution, when districts conduct fundraising, established internal policies and procedures need to be examined. Because funds were received by the district and dispersed to eligible hourly employees, the district must keep a record of the transactions.  Here is where the stickiness of the situation becomes evident.  Unlike a person receiving the funds directly as a gift, the district is governed by internal, state, and federal policies.  

GoFundMe donations are generally for the personal needs of the recipients, such as paying for rent or living expenses. The IRS considers this a personal and nontaxable gift.  If the funds were used to pay the employees for work, that opens new questions. For example, was the fund raising for the district and not the employees? How did the district account for the donations? Because districts do not generally process GoFundMe donations, it is possible the funds were not processed accurately, resulting in the district trying to record the receipt and distribution through traditional methods.  

The supervisor’s response to the young accountant is defensive and lacks transparency.  Discussing the reporting process would have helped the accountant understand the situation from the district perspective. My guess is that the supervisor did not anticipate the issues that led to the tax consequences.  Since this was a unique situation that occurred during a global crisis, admitting that the rules do not work is honest, and exploring solutions reflects well on the superintendent and district.

The accountant disregarded the direction of the supervisor about not taking further action.  Communicating with the superintendent demonstrates that the accountant understands the importance of not bypassing the district.  A young employee may need guidance in appropriate steps to bring an issue to a higher level.

The district should reach out through the superintendent to see what can be done to avoid the penalty for gifts processed by the district for hourly employees.  There may be exceptions that can be arranged for the employees and the district.  A district that does the right thing to help its people during a crisis sends a message about what matters.  Hopefully, the outcome will  show that “good deeds are worth the effort.”
Sheldon Berman:

The accountant has a viable concern about taxes for individuals receiving GoFundMe account income. However, the issue facing the superintendent isn’t just whether the district followed appropriate reporting and tax regulations, but also whether it is appropriate for an employee to take an independent action that contradicts the direction of her supervisor based on a concern about whether something was legally correct. 

The supervisor erred in responding to the accountant. Instead of simply asking her to take no further action, the supervisor should have taken her question more seriously and explained the factors that led to the district’s determination of tax liability. If there was still a question in the accountant’s mind, the supervisor should have sought the advice of the IRS. Taking that approach would have allayed the accountant’s concern while providing a solid basis for how to handle the income from a GoFundMe account.

Given that her concern is viable and her letter to the IRS may be protected as the act of a whistleblower, no action should be taken against the accountant. It is unclear whether her supervisor sought the counsel of the town’s or city’s chief finance officer or other well-informed sources on tax procedures before moving forward. The superintendent should talk with the supervisor to determine the basis for considering the payments as consulting income and ensure the district followed the appropriate tax procedures. 

The superintendent can then thank the accountant for the heads-up, explain the actions taken to ensure the district is following an appropriate approach to taxing these individuals, and indicate the district is looking forward to the reply from the IRS.
Chris Nicastro:

This case highlights a number of issues to be addressed: communication and decision making in a crisis, compliance with state and federal employment and compensation regulations, and supporting the needs of employees in a fair and compassionate manner.  

First, the supervisor who set up the account, while well meaning, should have taken more time to discuss the issue with the superintendent. A more thoughtful conversation would have given both parties, and other members of the team, the opportunity to examine options, explore the financial implications for both employees and the district, and ensure compliance with all state and federal compensation and reporting requirements. 

While the pandemic created the need for extraordinary measures to assist and compensate staff, in this case the action has created additional problems. At this point, the superintendent should call together the supervisor, the accountant and perhaps a representative of the affected employee group to discuss how to address the problem and generate a mutually agreeable solution. 

The superintendent should ask the supervisor to deal with the young accountant in a separate meeting.  Assuming her youth and inexperience caused her to violate her supervisor’s trust in reporting the issue, he should issue a warning, encouraging her to disagree but emphasizing the need for following directives and communicating openly with her supervisor, not the superintendent. The superintendent should also use this as an opportunity for reflection and growth. Action in a crisis is not something to be done “without much thought.” Such actions inevitably create further issues down the road.  

Roark Horn: 

Taking initiative is one thing. Going against the direction of a supervisor is another. The fact the accountant wrote to the IRS anonymously indicates she knows she is on thin ice. Telling the superintendent without telling her supervisor illustrates she has little regard for the hierarchy necessary for the system to run smoothly. 

The superintendent should require the accountant to be fully forthcoming with her supervisor and empower the supervisor to take any action necessary to ensure the accountant does not repeat this action. This could include termination for insubordination.  
The Ethical Educator panel consists of SHELDON H. BERMAN, AASA lead superintendent, Redmond, Ore.; ROARK HORN, the Pomerantz endowed professor in educational excellence, University of Northern Iowa; CHRIS NICASTRO, former Missouri commissioner of education; and MARIA G. OTT, Irving R. and Virginia A. Melbo chair in educational administration, Rossier School of Education, University of Southern California.