A free workshop for local nonprofits on “Tricky Tax Issues & Savvy Solutions,” sponsored by the Laguna Beach Community Foundation and the Laguna Beach Seniors, to be held this Monday, July 18, couldn’t be more timely.
Last month the Internal Revenue Service issued a revocation list that named organizations that have lost their tax-exempt status due to a failure to file legally required documents. A score of Laguna Beach nonprofits were on the list of supposed deadbeats.
The list resulted in a misunderstanding for the Laguna Beach Sister Cities Association on the eve of their annual music festival, causing potential concern about whether donations remain tax-deductible.
As it turns out, the IRS delinquent Sister City Committee of Laguna is long defunct despite a similar name to the current organization.
The Laguna Beach Sister Cities Association’s tax-exempt status is intact, said president Karyn Philippsen. The Sister City Committee may have had something to do with a group that was looking into establishing a sister city relationship with a Canadian city back in the 1980s, she said.
Just such mix ups, though, create confusion for donors, who should not rely solely on the list before drawing conclusions about the status of their donations, points out a June 8 article in The Chronicle of Philanthropy, an online magazine about charities. While the IRS expected that most names on the list corresponded to defunct organizations, some active organizations current in their filings did report being wrongly placed on the list, the article says.
Many of the names on the list probably represent small organizations that never really got started or that maybe functioned for a short period of time, said attorney Diamond Tran, of the Public Law Center in Santa Ana. “Many times people have a passion for a cause, and they have some momentum in the beginning” so they start up a nonprofit, said Tran. Then, founders find they can’t sustain the organization and it becomes defunct without officially dissolving or notifying the IRS, she said.
Another Laguna group on the revocation list, Motivated Museum Members, was established in the early 1990s to oppose plans for a merger between the Laguna Art Museum and the Newport Harbor Museum. The cause was won and the group long also quit campaigning, yet the organization remains on the list.
Previously, small nonprofits with annual revenue of $25,000 or less were not required to regularly file annual returns. That changed with passage of a federal law in 2006 requiring the tax-exempt to annually submit Form 990, which asks for basic information, such as the name of a principal officer and a mailing address. The IRS gave nonprofits three years, or until 2010, to comply with the new law or risk forfeiting their status because of a filing oversight.
Most active non-profits rely on an accountant, attorney or treasurer who keeps abreast of required paperwork. But smaller organizations, that typically hire a one-time attorney to prepare start up paperwork, have a harder time staying current with ongoing tax changes, Tran said.
Keeping up with all of the required forms “is a burden for small non-profits that just rely on volunteers,” agreed Gene Felder, treasurer for the Laguna Beach Historical Society, who has turned for assistance to the Community Foundation to keep the Historical Society’s filings current. Felder said he plans to attend Monday’s workshop as well.
Felder, also vice president of the Laguna Canyon Conservancy, was surprised to learn that they are on the IRS list. Since the conservancy is an advocacy group, donations to their organization were never tax-deductible in the first place, he said.
President Carolyn Woods was equally surprised. She contacted the IRS to figure out why and see what forms, if any, may be outstanding.
These are just the kind of concerns tackled by the Laguna Beach Community Foundation, which exists to help local philanthropies’ organizational needs, said board chair Laura Tarbox, a local resident and president of the Tarbox Group, a wealth management firm.
Setting up a 501(c)(3) involves a lot of paperwork, but nonprofit groups often go through with it so that they can give supporters the opportunity to make tax-deductible donations, even when their cause may be of a temporary nature.
Besides helping nonprofits maintain their tax status, the foundation can also help individual philanthropists avoid similar paperwork requirements by establishing a fund for donations under the LBCF’s umbrella. This system allows groups to receive tax-deductible donations for a good cause without having to pay professionals to maintain their own nonprofit structure or worry about its administration. Ann Quilter, appointed temporary relief coordinator during last December’s flooding, worked with LBCF to set up a disaster relief fund.
Representatives of existing and prospective nonprofits alike are welcome at Monday’s 3:30 p.m. workshop at the Susi Q Center, 380 Third St. Local accountant Robert Gamez, who will address Form 990 filing rules and other issues, will lead a panel discussion.
More info: at www.lagunabeachcommunityfoundation.org.