In matters of civic engagement, such as helping the less fortunate or attracting new business, the work of charitable organizations is indispensable to any community.
But a change in tax law a few years ago cost many Tahlequah charities their exempt status, as it did more than a quarter million nonprofits nationwide.
The Tahlequah Area Chamber of Commerce and Tahlequah Main Street Association had their charity 501c3 status revoked Nov. 15, 2010. The revocations were announced by the IRS on its website July 13, 2011, and Dec. 7, 2011, respectively.
They were among 13 Tahlequah charities that had their status rescinded by the IRS on that date, and 64 charities that lost their status during the past three years. The local IRS list includes the Veterans of Foreign Wars, Cherokee United Way Inc., Illinois River Area Volunteer Fire Department and Kiwanis International.
“Our Form 2023 application has been resubmitted,” said Trae Ratliff, TMSA president. “Williams & Williams accountants have been helping us with the process. Our understanding is that our application is awaiting processing by the IRS.”
An organization can lose its charity status if it fails to file a Form 990-series return or notice for three consecutive years. Status can also be stripped if the charity channels money to private interests or engages in politically partisan activity.
The IRS site does not reveal how a charity loses its status, but Drew Haley, TMSA director, said most were simply unaware of the new requirements.
“The IRS adjusted the income threshold, which required an organization to file,” he said. “Many were caught off-guard. This problem developed before I took this position, and we have been doing everything to get our status re-established. But it is a glacial process.”
On June 8, 2011, the IRS announced that about 275,000 U.S. charities had lost their status for failing to file tax returns. Many of the charities were likely derelict.
The adjustments in tax law, enacted in 2010, dates to the Pension Protection Act of 2006. Until the change, charities receiving less than $25,000 in donations were not required to file. About 77 percent of the charities listed were below the $25,000 threshold.
“We don’t receive a lot of contributions,” Ratliff said. “We have three main income sources. The city covers much of our overhead. Our members – downtown businesses – provide some income, but not much. It doesn’t make a lot of sense to try to get their cash registers ringing, then charge them a lot for membership. The third source is our events.”
An organization can appear on the list of revoked charities even if it has been reinstated or is filing for reinstatement. A listing of charities dated Sept. 9 did not include the TMSA or chamber.
An IRS regulation states: “While an organization’s Form 2023 is waiting for application by the IRS, the organization may operate as a tax-exempt organization.”
Such deductions do hinge on the status being regained.
“I can’t imagine a single reason why the TMSA or chamber won’t regain tax-exempt standing,” Haley said.
CHECK IT OUT
A list of exempt organizations can be searched at apps.irs.gov/app/eos. Revocations are listed at www.irs.gov/ Charities-&-Non-Profits/Automatic-Revocation-of-Exemption.