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Research Friday: Really, Your Tax Exemption has been Revoked?
Friday, June 10, 2011
Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit expert from our academic faculty to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. We welcome your comments and feedback.
Long overdue, the IRS finally pulled the trigger. Yesterday, they published the list of organizations that have lost their exemption from paying income tax due to failure to file required reports in 2007, 2008, and 2009. The list includes 4,025 with an Arizona address, including two-thirds (2,708) with the coveted charitable exemption.
This is great news. You wouldn't know it from reading most of the hand-wringing, though. The IRS has been slow to move, making sure that they had gone well out of their way to inform these organizations of their obligations and then warn them of impending doom. The ones that did not get the message are either working under a rock, willfully noncompliant, or closed up without telling the authorities. The result is that the chaff is blown away, leaving behind a much cleaner picture of the nonprofit sector. Arizona doesn't have 15,000 federally-recognized charities — it now has closer to 12,000.
The news no doubt sent many board members scurrying to their organizations to find out if they are on the list. For the most part, if you think to ask, you probably aren't on the list. Most of them are very small. The National Center for Charitable Statistics notes that 90 percent of these organizations have never filed any kind of return. Mostly they're clubs, and they come and go. In this economy, we shouldn't be surprised that a big chunk of these tiny organizations reliant on donations have simply disappeared. And, for what its worth, Arizona organizations are getting new charitable exemptions all the time, more than 800 of them in 2010 alone. Out with the old, in with the new.
I went looking for the revoked ones that might be a little more substantial, and I found a few. Four of these public charities that lost their exemption yesterday were part of the ASU Lodestar Center's Scope of the Sector report and had revenues of over $1 million in 2005 or 2006. We included them in the study because that was the most recent return we had for them. Turns out, it probably would have been better to leave them out.
The largest one, reporting $2.3 million on their last return in 2006, is the Helping Hands Agency in Page. According to their website, they get state money to provide services to adults and children with developmental disabilities. A webpage doesn't always mean much, though. The "Fall Festival" advertised on their homepage is for 2008, and the "events" link opens up to a May 2009 calendar. Still, I called them up, and their voicemail message identifies them as Helping Hands, although no one was answering phones during their advertised office hours. I guess the jury is still out on this one, although I wouldn't exactly call them a going concern.
The next one is Educational Care, in Tempe, who reported $1.8 million in fees earned from child care fees on their last return in 2005. When I called them, I got a calling system for Summa Associates. Seems that Summa not only has the same phone number, but once had the same exact address as Educational Care. And it seems that Summa is also involved in child care. I didn't follow the voice prompts to a real person, but I'd guess that the founders abandoned their nonprofit and maintained their for-profit consulting gig instead. In any case, Educational Care doesn't turn up other traces. They're apparently dead, and the IRS is just now cleaning up the body.
The third one is Western Navajo Juvenile Services Coordinating Council, in Tuba City. Their 2006 Form 990 shows $1.3 million in government grants, although I'll guess that those were probably really contracts. They provide(d) corrections services. I called them up, let the phone ring 10 times, and nobody picked up. That's not definitive, but this is another one I suspect won't be too worried about the revocation.
The fourth one is The Nation's Missing Children, in Phoenix. They reported $1.2 million in revenues in 2005, but I now see a 2006 return that reported only $600,000 in revenues. Web searches don't turn up much for this specific organization. I do find a link between the phone number and the National Center for Missing Adults. The website resolves to a similar organization called Let's Bring them Home, headquartered in Arkansas. Organizations that reincorporate in another state also have to reapply for a new charitable exemption, so I'd guess that they abandoned The Nation's Missing Children in Arizona and went for a new brand in Arkansas. However, the EIN advertised as 501(c)3 on their website (13-3759639) is one digit off from The Nation's Missing Children (13-3759539), suggesting a typo. The one that Let's Bring them Home advertises doesn't actually turn up a registered charity. That's a delicious mystery, but I'll let the Arkansas people, or the organization's donors, worry about it. Point is that this is one more Arizona organization that simply isn't around anymore.
We could go on, but we'll find that almost all of these revoked organizations are either defunct or barely operating. They are almost always very small. The active ones have their act together and filed their required forms long ago. If you really did miss the boat and want to try to get your exemption back, see what Pat Lewis had to say about it a few months ago, and read the tip sheet from the National Council of Nonprofits.
This IRS action is long overdue. People like me use lists of charitable organizations as a basis for our research. Garbage in, garbage out. It's like looking at a list of voters with a bunch of deceased people on it. By first instituting a minimum reporting requirement for small charities, and then finally winnowing the field yesterday, we now will have a much clearer picture of what the sector actually looks like.