IRS crackdown leaves thousands without tax exempt status

Print

Cheryl Reitan had a headache to deal with Friday.

The Internal Revenue Service seemed to say the entire University of Minnesota-Duluth lost its tax-exempt status, meaning donations to the school were no longer tax-deductible.

“We’re not very happy about that, and our donors are like ‘What’s going on?’” said Reitan, a spokeswoman for UMD. “We’re just completely insane about that little notice.”

Reitan was quick to clarify: IRS data actually referred to the UMD Literary Guild — not the entire satellite campus of the University. She said her office would be sending a press release to clarify.

The guild is one of more than 5,000 Minnesota nonprofits to lose tax-exempt status last week, when the IRS cracked down on groups that hadn’t filed tax returns for three consecutive years. It’s the result of a 2006 law that required nonprofits making less than $25,000 a year to file returns, in efforts to better follow such groups.

Greek life groups were at risk of losing their status because of high turnover in management, Jeff Narabrook of the Minnesota Council of Nonprofits told the Daily previously, but only defunct fraternities and sororities of the University showed up on the list.

Jokondo Jokondo, president of Omega Pi Psi fraternity, said his group will need to find more ways to make money because they now can’t use tax-exempt status for discounts when catering events or making other large purchases.

Lindsay Nichols of nonprofit tracker GuideStar said this is the way the status change will impede groups the most — it will be generally harder to attract donations and grants. Plus, reapplying for tax-exempt status takes time and money.

Jokondo said since the overarching Omega Phi Psi still has the status, the University campus chapter is working on regaining its own.

“It is what it is,” Jokondo said. “We’re just working through it.”

Multiple Minnesota chapters of the Tau Kappa Epsilon fraternity are also no longer tax-exempt, but members of the University chapter could not be reached for comment.

Other college chapters of fraternities and sororities — most appear to already be defunct — are also on the revocation list.

Nichols said the crackdown will help the IRS learn more about active nonprofits.

“We’re going to get a real look at how big the sector is, how much influence we have,” she said. “… we just really didn’t have that before.”

In a statement, GuideStar president Bob Ottenhoff said because the IRS will have a better idea of which groups are in good standing, the public will, in the long-term, feel more comfortable donating to the nonprofits.

“University of Minnesota School of Agriculture” and “University of Minnesota Police” listings also appeared more grandiose than was reality – those entries actually referred to smaller organizations.

The agriculture school listing was actually for an alumni association. The University Police reference stood for the University of Minnesota Police Federation — essentially a flower fund, said police Chief Greg Hestness.

It was one of many groups that was defunct and therefore won’t be affected by the change. The IRS believes a majority of the 275,000 groups that lost their status nationwide fall under this category, according to a press release.