Earlier this year, the Springfield Citizens Police Academy Alumni Association presented the city with $25,000 it raised for the Springfield Police Division to buy and train two new K-9s, Jack and Spike.
At about the same time, the Internal Revenue Service notified the alumni association that its nonprofit status had been revoked as part of a process that began in 2011 to automatically strip organizations of their tax-exempt status if they don’t file an annual return or notice for three consecutive years.
To date, 502,422 organizations nationwide have lost their nonprofit status as a result, according to IRS records. More than 200 of those revoked organizations are based in Clark and Champaign counties.
For donors, it means the contributions these groups rely on are no longer tax deductible.
The same 2006 law that sparked the phenomenon known as auto-revocation also imposed a filing requirement on even the smallest of nonprofits for the first time.
Small organizations such as the alumni association previously would have been exempt from filing an annual return with the IRS.
“It’s embarrassing,” said Jim Kreckman, former treasurer for the Springfield Citizens Police Academy Alumni Association. “I wish I’d known the law changed.”
For those small organizations frequently staffed by unpaid volunteers, revocation is “extremely upsetting,” said Vicki Matthies, president of the alumni association.
“We hope it doesn’t hurt us,” she said.
Police Chief Stephen Moody, whose department has been the recipient of nearly 13,000 volunteer hours from the alumni association since 2006, is unwavering in his support for the group.
“I know they’re upset by the clerical error,” Moody said. “We’re all human.”
While the police dogs have so far been the group’s biggest donation, the alumni association also has purchased items for the department not in the city budget, Matthies said, including a bullhorn, digital voice recorders, lock-out kits for vehicles and even mulch for the flower beds in front of police headquarters.
“It’s community volunteerism at its best,” Moody said.
The IRS wouldn’t comment on auto-revocation for fear of looking like it had disclosed information about a specific organization.
But, there seems to be little sympathy for the affected nonprofits at the Ohio Attorney General’s Office, which contacts each organization in the state to determine a plan for continuation once its federal nonprofit status is revoked.
“Board members have a legal duty of compliance and ensuring they are following the law,” Kate Hanson, a spokeswoman for Ohio Attorney General Mike DeWine, wrote in a recent email.
The Olive Branch School Preservation Society in New Carlisle was notified this year as well that it had been placed on the auto-revocation list, a searchable tally of organizations on the IRS website.
The society, formed to restore the century-old, Craftsman-style school near Tecumseh High School, had kicked off its first fundraising drive only a few months before, setting out to raise $50,000 in donations to remove asbestos from inside “the little round school.”
“Groups like ours that are very small … they’re nailing us,” said Bill Berry, chairman of the preservation society’s board and a retired educator who served as assistant superintendent for the Tecumseh Local School District.
The preservation society, which has so far raised $5,000 of its goal, has backed off from soliciting donations, Berry said, “until we can get back in the good graces of the IRS.”
The Springfield Citizens Police Academy Alumni Association has ceased fundraising as well, Matthies said, until it can get its nonprofit status reinstated. Donations from the public made the purchase of Jack and Spike, the police dogs who’ve been on the street since May, possible in the first place.
“That’s why we’re devastated we lost our exempt status,” Matthies said. “We’re not sure we can do anything like that again unless the IRS restores our status.”
For an organization to get its exempt status back from the IRS, two things are required — money and time.
Reinstatement fees cost $400 for organizations whose gross receipts don’t exceed $10,000 during a four-year period and $850 for larger organizations.
With conceivably thousands of revoked nonprofits applying for reinstatement, the IRS is more than 14 months behind in reviewing exempt applications, according to Sandra Pfau Englund, a Florida attorney specializing in nonprofits.
Englund also is the founder of Parent Booster USA, an organization created in 2004 to help school booster clubs navigate the IRS. With the slogan “Get legal, stay legal,” her business has grown from 44 member organizations in 2008 to more than 1,300, she said.
Because each member of Parent Booster USA must file its own returns annually with the IRS using its unique employer identification number, or EIN, more than 100 of her current and former member organizations are on the auto-revocation list, including the Clark-Shawnee Athletic Boosters locally.
“It is causing a mess for a lot of legitimate, small organizations,” Englund said. “The IRS isn’t able to keep up with it. They’re so far behind. They clearly don’t have the staff to look at all these exemption applications.
“Maybe the point was to get more money from the exempt organizations.”
Even after an organization regains nonprofit status, it remains on the IRS auto-revocation list for all to see. An organization’s current exempt status isn’t reflected.
The Heritage Commission Corp., which champions history in South Charleston, got its tax-exempt status back in 2012, president George Berkhofer said, but remains on the list.
He remembers initially filing for exemption in 1980, when the application consisted of the front and back of one sheet. To recently reapply for nonprofit status, he said he had to fill out roughly 20 pages.
“It’s time consuming. It’s tedious. It’s nerve wracking,” Berkhofer said.
Auto-revocation was ushered in as part of the Pension Protection Act of 2006, a federal law that also required small organizations with receipts less than $25,000 to file an annual electronic notice — a type of return known as an e-Postcard — with the IRS beginning in 2008.
“You’d have to ask the IRS what their true intent was,” Englund said. “My understanding is that they were trying to make sure organizations were still active.”
Many organizations on the auto-revocation list indeed are defunct, with no one to file a return. In June 2011, the IRS started enforcing the law by automatically revoking exemption for about 275,000 groups — 10,645 of which were in Ohio — in what an IRS spokeswoman called “a large-scale automatic revocation event.”
“The only people it’s good for,” Englund said, “are lawyers like me.”
Some local organizations, big and small, disagree that they belong on the automatic revocation list.
The Ohio Masonic Home, a tax-exempt, Springfield-based organization with $48.3 million in assets, has several of its subsidiaries on the list, including the Springfield Masonic Community.
The IRS contends that the subsidiaries haven’t filed the required returns for three consecutive years.
But, according to John B. White, interim CFO for the Ohio Masonic Home, those subsidiaries are included in a group exemption for the Ohio Masonic Home Affiliates, which has filed returns for the entire group.
The Masonic Home has been trying to resolve the issue with the IRS for at least more than a year, according to copies of letters to the IRS provided by White.
The Open Hands Free Store, a project of six local United Methodist churches, was notified in March that its nonprofit status was revoked for not filing returns.
As an association of churches, the organization known legally as the Springfield Initiative shouldn’t have to file returns, contends Jeff Allen, lead pastor of High Street United Methodist Church and president of the Springfield Initiative board.
“It creates anxiety among our donors,” Allen said of the store’s place on the list. “And that anxiety should not be there.”
Located in the Southern Village Shopping Center, the “store” offers food, clothing and other items free of charge three days a week. In 2012, Allen said, the store served more than 2,000 local households.
They’ve hired an attorney to help clarify their status with the IRS.
But, said Sherri Blackwell, executive director of the Open Hands Free Store, “We’re burning money that we could put into the ministry trying to fix this.”
She’s concerned about the store’s reputation because of its place on the list.
“All we can do is just trust that people can see what we’re doing,” Blackwell said. “We really are giving out food. We really are giving away things for free.”
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