More than 435,000 charities nationally have lost their non-profit status with the Internal Revenue Service, leaving the charities faced with paying income taxes and their donors at risk of losing deductions.
It’s a problem for donors, who contributed an estimated $298.4 billion in 2011, because they could lose the deductions they were entitled to as a result of their donation, according to the IRS and experts. The charities are faced with paying income tax on contributions accepted after their nonprofit status was revoked.
More importantly, experts say, failure to file with the IRS leaves the charity unaccountable, potentially compromising the wide range of good causes they are supposed to be boosting.
“When booster clubs raise money for their charitable purpose, the charity holds that money in trust,” said Pete Thomas, chief of the charitable law section of the Ohio Attorney General’s Office. “Many of these booster clubs have significant assets. They’re not always ending up where they’re supposed to.”
The charities lost their nonprofit status after failing to file tax returns for three consecutive years.
Last week, the Springboro Athletic Boosters Association said local authorities were contacted after a club official paid about $130,000 into the club account — which showed a balance of $190,424 last week, according to school district records.
“We are saddened to have discovered a major transgression that, because of deception, was not readily observable. Once it was, we took immediate action to recover the money we knew to be missing and, in turn, notified the appropriate authorities so that the behavior can be addressed in the legal system,” the club said in a statement issued by lawyer Jeff Kirby.
Unlike the Springboro athletic booster group, which continues to operate more than a year after revocation of IRS charitable status, some of the revoked charities listed by the IRS no longer function, officials said. Other Ohio charities are operating without filing with the IRS, according to the Ohio Attorney General’s Office.
In Ohio, booster clubs aren’t required to register with the state, although Thomas said his office has discussed this “being a problem.”
Donors can determine the charity’s nonprofit status online or by calling the IRS.
“Be an informed donor,” Thomas said.
The Ohio Attorney General’s Office offers training for nonprofits to develop financial controls and other procedures designed to ensure accurate financial reporting.
“It’s important that boards understand or have in place good procedures,” Thomas said.
The IRS revokes charities’ nonprofit status through federal law included in the Pension Protection Act of 2006. The first list of 275,000 revoked charities was released in June 2011 following efforts to notify and offer assistance to charities facing revocation.
“The IRS did make an effort to get the word out to charities about the requirement. It also held off on issuing the revocations for a period of time giving charities a second chance, if you will,” Susan Miniutti, chief financial officer and vice president of marketing for Charity Navigator, an online nonprofit evaluator, said in an email.
“Oftentimes charities will go out of business and not properly dissolve. The three-year check for a filing is one way to remove those groups from the IRS database,” Miniutti added.
The 990 filing also offers a way for donors to gauge where charities are spending their money, Miniutti said. Charities are required to provide the most recent three years’ filings, upon request.
The IRS revocation list released last week names 436,505 charities nationally — about 40 percent of the total number of nonprofits, including the Springboro Athletic Boosters Association, operating as 501(c)(3) organizations in 2011, according to Giving USA 2012, a report released on June 19 by the Center on Philanthropy at the University of Indiana.
The 501(c)(3) is the largest of seven categories of nonprofits classified by the IRS.
It was unclear how many of the charities on the revocation list have been reinstated.
Last week, none of the 16 listed from Springboro, including the athletic boosters association, had been reinstated, according to the IRS.
The Springboro Athletic Boosters Association’s nonprofit status was automatically revoked on Nov. 15, 2010, and posted on July 13, 2011.
The group’s financial problems came to light after new board members Jim Rigano and David Petroni began pressing for booster group information after their election in the November 2012 election, as part of a study of pay-to-play fees and athletic department funding.
Rigano said district Treasurer Tracy Jarvis was developing procedures and controls for booster club financial reporting.
“We want to make sure all these organizations have good records,” Rigano said.
Last week, following questions from the Dayton Daily News, the athletics booster club contacted an accountant about seeking reinstatement of its nonprofit status “as quickly as possible,” Kirby said.
Reinstatement fees range from $100 to $850, according to the IRS.
The boosters also pledged to take additional steps to clean up financial problems and continue supporting school athletic programs.
“We love Springboro, and will continue to work hard for the athletic program and all who participate in it. The Boosters Club remains strong financially, and changes are forthcoming to make it even stronger. We value the trust you place in us. Go Boro,” the club statement concluded.
Kirby declined further comment, pending conclusion of the investigation.
Contact this reporter at (937) 225-2261 or lbudd@DaytonDailyNews.com.
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