The Internal Revenue Service has revoked tax-exempt status for 2,212 nonprofit organizations in Bucks, Burlington and Montgomery counties for failure to submit required annual paperwork three years in a row, agency officials said.
Local organizations on the revoked list — and another 669,615 across the nation — may really feel the financial punch of that loss. “Any income that they received may be taxable,” according to the IRS, along with things they buy.
The federal government’s revoked list, released to this news organization as a spreadsheet, includes the Burlington County Press Association, 74 chapters of the New Jersey State Policemen’s Benevolent Association, 126 chapters of the New Jersey Education Association, and dozens of American Legion and Veterans of Foreign Wars posts as well as four Fraternal Order of Police organizations in the three counties.
In addition to easily recognizable organizations, some status-revoked groups had obscure names such as the nonprofit identified simply as “Buck” and registered to a Doylestown post office box. Another — named “Glory” — was registered to a Willingboro P.O. box. Each lost status in 2010, according to IRS records.
Among those listed as revoked, representatives of some organizations said they were unaware of the change in their tax-exempt status. And others said failing to file the paperwork was an oversight and they were anxiously waiting to get that status back.
Patrick Colligan, president of the New Jersey State Policemen’s Benevolent Association, said he has been working to bring all of its many local chapters, representing some 33,000 law enforcement officers, into compliance with the IRS for about 18 months.
“We have been sending out letters to our own locals,” Colligan said. “These are full-time police officers. They’re volunteers trying to keep a small organization humming. They don’t have full-time staff to deal with these issues,” he said.
The NJSPBA president was not particularly concerned about tax implications since his local chapters aren’t making large purchases, he said. “It’s a big deal because they’re not in compliance. But they’re working on it,” he added. It’s being taken care of.”
NJEA spokesman Steve Baker said some of “status revoked” organizations were no longer in existence and “not properly dissolved.” Others, he said, had issues with their paperwork and were working with the IRS. “We represent hundreds of local associations – over 700, I believe – and work with them to file a tremendous amount of paperwork. When issues like these arise, it sometimes take a while to track them down and get them corrected. However, it does not normally affect their ability to operate, as they are able to get the status restored once the paperwork is corrected.”
For 98 years, the American Legion Post No. 148 has served veterans in the Langhorne area. Its tax-exempt status was revoked May 15, 2011, tax records show.
“The tax filing, for us, wasn’t very hard,” said post adjutant David Lowry. “It wasn’t complicated. It was just something that fell through the cracks.”
Named in honor of Jesse Soby, a Hulmeville man killed in the final days of World War I, the legion post has few members and no paid staff, Lowry said.
“Certainly, it doesn’t make you look good as a volunteer organization. And during this whole time, you’re always wondering, are we going to get it back? Did we miss something (in the paperwork),” Lowry said.
“If you’re taking in money for things, such as to do work on our building here, then you don’t want to have to pay taxes on it,” he added. Loss of the tax-exempt status means the group must pay taxes like any other for-profit organization.
Three strikes, you’re out
Hundreds of thousands of nonprofits began losing their tax-exempt status in early 2010, four years after Congress changed the rules governing them, tax records show.
In 2006, then-House Speaker John Boehner introduced the Pension Protection Act to “reform single-employer defined benefit retirement plans.” Page 285 of the 394-page law contained a provision requiring all nonprofits, regardless of annual spending, to file annual tax forms with the federal government. Under previous standards, nonprofits reporting less than $25,000 in revenue didn’t have to file.
The act passed the U.S. House of Representatives with a 279-131 vote and passed the U.S. Senate by a vote of 93–5; it was signed by President George W. Bush on Aug. 17, 2006.
Following adoption of the new standards, the IRS said it made repeated attempts to alert groups about the changing requirements, warning that tax-exempt status would be revoked after three years of noncompliance.
“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” IRS Commissioner Doug Shulman said. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors.”
Of the 671,827 organizations that lost tax-exempt status after the law became effective, only 82,940, roughly 12 percent, have had it restored, government records show.
In many cases, contact information maintained by the IRS was outdated and warnings were sent to the wrong address, said Rick Cohen, of the National Council of Nonprofits, a trade group.
“They may have reached out to an address that may have been several years old or to a person who hasn’t been with the group in several years,” said Cohen. “There were certainly some groups that they didn’t reach.”
Among those groups locally was Freedom Neighborhood One in Bucks County, said Darlene Holloman, a founding member of the nonprofit. Since 2001, the organization has advertised itself as a nonprofit “providing mentoring, monitoring and guidance” to children in Bristol Borough, Bristol Township, Morrisville and Bensalem. In May 2015, the federal government revoked FNO’s status for failure to submit the annual paperwork for three years.
“I didn’t know what it was or that it had expired,” said Holloman. “We thought we could get it reinstated, but we’re just not there yet. We’re doing as much as we can without that status. The things that we’re purchasing are not tax-exempt. It had a great impact.”
The Beverly Fire Co. in Burlington County, New Jersey, was one of the few groups to have its tax exempt status restored by the IRS after it was revoked in May 2010, tax records show. The status was restored, retroactively, back to 2010. As a result, there was no financial impact on the group, said Harry Craythorn, the fire company treasurer.
”We actually bought a firetruck, and if we had lost status, we could have been paying taxes on it,” he said. “I don’t even want to think about what the taxes on that would have been on that purchase.”
Altered filing status
As of Feb. 13, the IRS Tax Exempt Government Entities Division was monitoring 1.6 million tax-exempt organizations nationwide, officials said. The division has approximately 600 employees, or one worker for every 2,696 tax-exempt groups, said Michael Dobzinski, agency spokesman.
Pennsylvania is home to 54,143 nonprofits that are eligible for tax-deductible donations, according to the IRS. New Jersey had 36,221 tax-exempt groups as of Feb. 13, records show.
For groups that lose that status, even temporarily, transparency is critical, said Cohen.
“Transparency is the hallmark of the nonprofit sector. So, if you’ve got that ‘Donate Now’ button on your website, make sure it says on there that you can’t do tax-deductible donations,” Cohen said.
Online donation buttons have only further complicated the registration process for nonprofits across the U.S.
In addition to federal requirements, most states have their own regulations, which predate the rise of the internet. The New Jersey Charitable Registration and Investigation Act was adopted in 1994. Pennsylvania’s law was adopted in 1990. Pennsylvania and New Jersey are among 41 states that require nonprofits to register before raising any money.
“While New Jersey does not directly regulate online donations, charities soliciting contributions in, from or into New Jersey are treated in the same manner,” said Lisa Coryell, of the New Jersey Attorney General’s Office. “Any charity operating in New Jersey, wherever it is soliciting, must be registered in New Jersey. Any out-of-state charity actively soliciting New Jersey residents for contributions is also subject to registration.”
The National Council on Nonprofits recommends all groups that intend to raise money online should register in all 41 states with laws governing nonprofits rather than risk fines and penalties.
Arizona, Indiana, Idaho, Iowa, Nebraska, Montana, South Dakota, Vermont and Wyoming have no requirement for nonprofit registration, the council said. However, Colorado, Illinois, Michigan, Nevada, North Dakota, Oregon and the District of Columbia have laws that require charities operating outside their state to file paperwork before soliciting donations in those places.
California, Florida and George encourage out-of-state charities to register there before raising money in those states but don’t require it, the organization said.
In addition to the impact on revoked groups, donors to these organizations will feel the pinch of not getting a tax deduction for their donation it it’s discovered during an audit, the IRS said. Donors can check the nonprofit status of any group at https://apps.irs.gov/app/eos/.
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