More Than 40 Area Nonprofits Lose Tax-Exempt Status

When the Moravian Cultural Society holds its annual celebration of Czech culture this fall, visitors might not be able to claim the cost of attending as a tax deduction.

“The event is what we’re concerned about in November,” said Rose Pritasil, treasurer of the Hinsdale-based organization. “At this point, we have no idea what the impact of this is.”

The 46-year-old Society, which promotes Czech, Moravian and Slovak culture, is among the more than 13,000 nonprofit organizations in Illinois that were stripped of their federal tax-exempt status—the result of a 2006 law passed by Congress.

The 2006 Pension Protection Act requires most tax-exempt organizations to file an annual informational return or notice with the Internal Revenue Service. For small organizations, the law imposed the filing requirement for the first time in 2007.

“If they didn’t file for three consecutive years, by law, their tax-exempt status was automatically revoked,” said Sue Hales, an IRS spokeswoman in Chicago. “That fell in place last year.”

Prior to the law, small organizations did not have to file with the IRS, Hales said.

Last month the IRS released a database of more than 275,000 groups throughout the country that have had their tax-exempt status automatically revoked. The complete listing can be found on the IRS’s website, and is updated on a monthly basis by the IRS. Among those listed are 30 Hinsdale-based organizations, and 13 from Clarendon Hills.

According to the IRS, if an organization appears on the list, it is because IRS records indicate the organization had a filing requirement and did not file the required returns or notices for 2007, 2008 and 2009.

Return to sender

Many on the organizations on the IRS list are believed to no longer be in operation.

“The IRS does believe that the vast majority of the organizations that did not file are defunct,” Hales said.

Those organizations that have dissolved some time ago include the Hinsdale Heritage and Architecture Society, the Pendulum Theater Company and the Clarendon Hills Park Foundation.

The Clarendon Hills Park Foundation was a group that, years ago, worked with the park district to help raise funds for projects that enhance the parks, said Don Scheltens, executive director of the .

“It ran for a few years, but then broke up,” Scheltens said.

The group was last active about five years ago, and helped build the campfire area and Counsel Ring at .

The park district had received notices from the IRS indicating changes in the law and the new filing requirements, along with information on reinstating the tax-exempt status. But the park district cannot renew the status; it has to be done by foundation, which is a separate entity, Scheltens said.

“It would be nice if we could have some people who could step up and be members of the foundation and start it up again,” Scheltens said.

Over the years the district has put out the call for residents interested in serving on the foundation, but no one came forward, he said.

“It never redeveloped,” Scheltens said. “We’re still looking for people.”

Advance warning

According to the IRS, more than one million notices were sent to organizations throughout the U.S. that had not filed the required returns or notices to alert them of the possible automatic revocation.

In addition, IRS officials worked with the media to get the word out about the changes, Hales said.

“We did embark on a massive outreach effort,” Hales said.

But Pritasil at the Moravian Cultural Society said her organization was caught by surprise when “out of the clear blue” she received at letter indicating the group’s tax-exempt status was revoked.

“We never got anything in the mail, and I’ve been treasurer of the club for 30-plus years,” Pritasil said. “And if it would have come, it would have come to me.”

While her organization—which takes in less than $25,000 a year—filed state tax information every year, it never had to file anything with the federal government and was unaware that it needed to start doing so. Pritasil said a member of the Society who is an attorney is looking into the matter.

Getting tax-exempt status back

The IRS allows organizations whose nonprofit status was automatically revoked to apply for reinstatement of the tax-exempt status by filling an application and paying a user fee. Information about the applications and fees can be found here.

In addition, transition relief is possible for some small tax-exempt organizations (those with annual gross receipts of $50,000 or less in 2010) subject to the requirements of the 2006 Pension Protection Act. Those are eligible are able to regain their tax-exempt status retroactive to the date of revocation and pay a reduced application fee of $100 rather than the typical $400 or $850 fee.

Tijuana Smith, president and founder of Hinsdale-based Touched By An Angel Foundation, has already taken the steps to have her organization's nonprofit status reinstated.

“I just submitted the paperwork,” Smith said. “I’m just waiting on them to reinstate it.”

Established in 2007, Touched By An Angel funds other nonprofits in communities that don’t have sufficient means to support their endeavors, Smith said.

Currently the foundation is not working on any fundraising projects, and any funds the foundation had were raised prior the revocation of its exempt status.

According to the IRS, donations made prior to the publication of an organization’s name on the list remain tax-deductible. However, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions, and any income they receive may be taxable.

That has Pritasil worried about what that means for those who plan to attend the Moravian Cultural Society’s Czech Holiday Faire on Nov. 12.

“People who [pay a donation to] come to our events, [those] people take that off their taxes,” she said.