More than a thousand nonprofits around the state have lost their tax-exempt status this year, and a handful of those are Molokai organizations, according to a list recently published by the Internal Revenue Service (IRS).
Most tax-exempt organizations, other than churches, must file a yearly tax return with the IRS. If an organization fails to do this for three consecutive years, it automatically loses its tax-exempt status.
“Loss of exempt status means an organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations,” according to the IRS website.
According to the Hawaii Alliance of Nonprofit Organizations, losing tax exemption status also means that “private foundations are unlikely to give a grant directly to nonprofits that are not tax-exempt because federal tax law imposes an excise tax on grants made to organizations that are not tax-exempt.”
Before recently, small nonprofits earning less than $25,000 a year were not required to file tax returns.
“Many of these tiny organizations don’t have paid accounting staff, and are primarily run by volunteers,” said Karen Holt, director of the Molokai Community Service Council (MCSC). “So they might not even have known that the rules had changed.”
Holt sent out letters to the Molokai organizations in jeopardy last year, warning them of the change in law.
“The IRS originally planned to revoke tax exemptions a year ago, but they decided to give everyone a grace period after the outcries that followed their announcement,” explained Holt.
Now, eight Molokai organizations have lost their tax-exempt status. If yours is one of those nonprofits, all is not lost. There is a procedure for reinstatement that can be found at library.constantcontact.com/download/get/file/1011233453817171/Automatic+RevocationTip+Sheet.pdf.
According to the Hawaii Alliance of Nonprofit Organizations, “Eligible evoked nonprofits with revenues of less than $25,000 (less than $50,000 in certain circumstances) will be required to pay a reduced application fee of $100 rather than the typical $400 or $850 fee.”
IRS Tax Exemptions Revoked on Molokai:
Big Brother/Sisters of Molokai
Maunaloa Community Council
Molokai Business Association
Molokai Cancer Fund
Molokai Canoe Club
Molokai Filipino Community Council
Molokai Foundation of Hawaii
Contributed by Molokai Dispatch