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Charities, IRS both at fault in tax-exempt revocations

On Thursday, Sen. Dan Coats, R-Ind., authored a guest column attempting to convince you the senator is riding to the rescue of successful non-profits being trampled upon by the dastardly IRS.

He noted that since 2010, 623 Fort Wayne-area charities and nonprofit organizations have lost their tax-exempt status “without adequate notification.”

How could that happen? Those “successful” nonprofits failed to file a tax return with the IRS for three years in a row, so their tax-exempt status was automatically revoked.

Coats is authoring legislation requiring the IRS to notify the organizations first. That in itself is a good thing. But before we address the “problem” Coats describes, let’s examine what’s at issue here: These are organizations that have not filed a simple form – some are the size of a postcard – with the agency that granted their tax-exempt status, and failed to do so for three years in a row. Try that with your own tax returns sometime and see whether Coats – or anyone else – comes to your rescue.

As Coats correctly points out, Congress passed the law requiring automatic revocation in 2006 to clear thousands of defunct nonprofits off the books. The first time the IRS did that was in 2011, when the tax-exempt status for 365 Allen County non-profits was revoked. Most of them – like the Tokheim Athletic Association – hadn’t been in existence in years. Others, like the Kirkwood Park neighborhood association, didn’t even know they were tax exempt.

For most of these organizations, the revocation means little: As Kirkwood officials pointed out at the time, even if residents had known the group had tax-exempt status, it’s unlikely they would have deducted their dues on their tax forms – the real benefit the status grants.

And ask yourself: How financially responsible is an organization that wants its donors to make tax-deductible contributions but has no idea it needs to file an annual form?

“This process causes uncertainty for charities, their donors and the people they serve,” Coats wrote. “For most nonprofits that rely on charitable giving, the tax-exempt status is the difference between a donor making a contribution or going elsewhere.” If the charity you’re considering donating to has uncertain tax-exempt status, then by all means you should be taking your contribution elsewhere.

Again, Coats’ idea of notification is a good one. But a much better idea would be requiring the IRS to actually read the forms tax-exempt organizations do file.

If it did, it might have noticed that the tissue bank New Life Generations clearly stated on its form that not only was its return not shown to any of its board members, but it never would be: “No review was or will be conducted,” officials wrote. They also told the IRS they had no written conflict of interest policy and no whistle- blower policy and did not keep records of any meetings or actions taken. That red flag would have been a lot bigger when they saw the group also loaned $3.8 million to a board member-owned company.

Reading the forms might have let the IRS notice that Fort Wayne’s Archey AIDS Foundation was being used to pay the personal expenses of its founder. Or it might have noticed that for seven years in a row, the Up The Stairs Community Center reported thousands of dollars missing, with no explanation of where it went – including one year when nearly a quarter of the budget disappeared. They actually told the IRS that, and nothing happened.

IRS examiners also might have noticed that Christian Community Inc. essentially had no board members except a convicted felon who had served a federal prison sentence for defrauding banks and owed $2.1 million in restitution. That nonprofit only imploded because its tax-exempt status was revoked after it stopped bothering to file returns entirely – had the group filed returns, who knows how long it might have been able to keep its financial shell game going?

All of those problems were found not by the IRS, but by The Journal Gazette, not through the investigative powers the IRS has, but by reading tax returns the IRS requires to be made public.

So yes, Sen. Coats, the IRS should at least send a letter to these groups before their tax-exempt status is revoked. In fact, it should send one the first year they don’t file and every year thereafter. But more important, Coats should work to ensure the agency has the resources to actually look at the forms that do get filed.

Because while we in the media take our role as a watchdog seriously, that role should be in addition to – not in place of – the role of the agency intended to be the watchdog over these groups.