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Archive for Thursday, June 30, 2011

More than 250 nonprofits in Wichita lose tax-exempt status

June 30, 2011

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— Hundreds of nonprofit groups in Wichita are among more than 275,000 nationwide that have lost their tax-exempt status because they failed to file tax returns to the Internal Revenue Service.

Before 2006, nonprofits with annual earnings of less than $25,000 were not required to file yearly returns. That changed in 2006 when the law governing tax exemptions, called the Pension Protection Act, was changed to require all nonprofits to file each year regardless of revenue.

Under the law, any groups that failed to file for three straight years, starting in 2007, automatically lost their exemptions in June of this year.

The Wichita Eagle reports that includes more than 250 charities, trade associations, sports associations and labor unions in Wichita.

Among those losing their exemption is the Wichita Trojans youth football team, whose existence relies on fundraising to buy equipment and help pay yearly enrollment fees for some players.

Without the exemption, nonprofits can no longer receive tax-deductible contributions and sales tax exemptions on purchases.

"It's probably going to really hurt us financially," said Gino Pipkins, president of the Trojans and a former coach. "At the end of the year, we're broke. We're back at zero balance."

IRS officials have said the action helps eliminate tax exemptions for defunct organizations across the United States.

Perry Schuckman, executive director of the Nonprofit Chamber of Service of Sedgwick County, said the action helps strengthen legitimate nonprofits.

"It's a constant effort by the IRS to validate organizations that claim to be a nonprofit, so they are constantly looking at ways to validate that through new rules," Schuckman said.

But Mark Dodds, a certified public accountant in Wichita, said the IRS rules hurt small nonprofits such as sports teams that are run by parents who didn't know their tax-exempt status would be revoked.

Dodds said the change that prompted the revocations was buried in 393 pages of law dealing mostly with pension issues. Those that have lost their status must pay fees of up to $850, depending on annual revenues, which is too high for small charities operating on tight margins, he said.

"Seasonal-type organizations don't have the resources to spend a lot of money on compliance," Dodds said. "(They) need every dollar they can get ahold of."

The IRS is offering a re-application process, including a reduced filing fee of $100, to small nonprofits with annual revenues of less than $25,000.

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