Saturday, March 30, 2013

Just how haphazard and irresponsible is IRS not-for-profit organization oversight?

Exterior of the Internal Revenue Service offic...
We all subsidize nonprofit organizations. We are all helping to fund a hate group like Family Research Council. Aside from being tax exempt, most nonprofits also provide a tax deduction for donors. These organizations are also exempt from paying state and local taxes, even sales tax. Like it or not, we are all involuntary donors to Americans for Truth About Homosexuality.

Consider, for example, Blowhard Bill Donohue's anti-gay Catholic League. The organization generally "earns" (income exceeding expenses) about a half million dollars a year. They have no debt and are sitting on $30 million of assets. In the corporate world that 30 mil would be retained earnings on which about $10 million would have been paid to the US treasury. Furthermore, they take in about $3 million a year in tax deductible contributions so that's another, roughly, million or so each year that we all have to make up.

The least we should be able to expect is some surveillance and oversight from our tax authority?

So I decided to take a look at a small piece of the puzzle to see just how bad things are. I obtained the revocation database. These are organizations that failed to file tax returns for three years and were automatically revoked (according to the Service). There doesn't seem to be anything automatic about this. Not at all. It is random chaos.

For the geekily curious, I imported all of these records into a mySQL database on my Linux file server. 

  • There are 497,901records in the database. There are some duplicates (organizations revoked more than once). Many of these have had their tax exempt status restored (which doesn't remove them from the database). Presumably, some of these ceased operations which means no accounting at all.
  • The overwhelming majority do not seem to be "charities" as we commonly understand the meaning of that word.
  • These revocations were posted by the IRS between June 9, 2011 and March 28, 2012.
  • Revocations are retroactive (at least in theory) to the date that the last return was due. These have effective dates ranging February 15, 2010 to December 15, 2012. Even the effective dates don't conform to any recognizable paradigm.
  • It's important to recognize that the posting date establishes when the organization has to stop accepting tax deductible contributions. The deductions for donations made between the effective date and the posting date are generally not recoverable. It's more lost money.
  • On average the time that it took for the IRS to revoke was 335 days from the date that the (third) return was due. The range was 55 days (about what it should be) to 1,048 days. That's almost three years. Three years on top of three years of unfiled tax returns.

What does this mean in practical terms?

Glad you asked. Let's consider our friend Porno Pete LaBarbera and his merry band of crackpots at Americans for Truth About Homosexuality.

AFTAH was revoked on June 9, 2011    effective May 15, 2010. That's 390 days it took for the Service to "automatically" revoke his tax exempt status. In other words, Pete hadn't filed for three years and then got another year on top of that (I am guessing that they did not accept the 2009 return, filed in October of 2010, which was incomplete). Exactly what Pete filed to restore his tax exempt status is unknown.

In case you are interested, it took the IRS "only" 177 days to whack NARTH.

What can we do about this?

First of all, the regulation should be "one and done." If I started a non-profit on January 1, 2013 and, after extensions, do not file a return by October 15, 2014, I should lose my tax exempt status within 30 days. Officers should be personally responsible to ensure that donors during the lapse are informed that their donations are not tax deductible.

Contact your elected representatives.

I brought this to the attention of Senator Nelson's chief of staff. How much good it did. In that regard, if anyone wants state specific information or anything else from the database, please do not hesitate to contact me at dcdothartatslowlyboiledfrogdotcom.
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