Workers loaded groceries into vans Friday at the Gainesway Community Empowerment Center in Lexington to be distributed to senior citizens. The storefront center also offers after-school care, nutrition classes and myriad other services for families in need.
It's one of about 2,400 small non-profit organizations in Kentucky that could lose their tax-exempt status this month — a potentially devastating blow — because of a little-noticed change in federal law.
The Pension Protection Act of 2006 required all non-profits other than churches and church-related groups to start filing tax returns annually with the U.S. Internal Revenue Service. Previously, only large non-profits that collected more than $25,000 a year had to file a return.
However, hundreds of thousands of small non-profits across the United States never learned of the change. For many, Tuesday was the deadline to file with the IRS and keep their tax-exempt status. Loss of the status means their donations no longer are tax-deductible and their income can be taxed.
The Gainesway center was unaware of the new law until a reporter called this week, said director La'Yvonne Sensabaugh. The Urban County Government covers the center's rent, utilities and salaries, but the center raises about $10,000 a year to help pay for programs, which was thought too small a sum to require a tax return, Sensabaugh said.
"I imagine a lot of groups are as surprised by this news as we are," Sensabaugh said.
The problem is that small non-profits are least likely to have full-time executives and attorneys monitoring changes in the tax code, experts said.
A list of 219 Lexington nonprofits at risk of revocation Friday included neighborhood associations, charity relief groups, school booster clubs, professional fraternities, children's sports leagues, niche publications — the sorts of organizations that civic volunteers run in their spare time, from the Dunbar Alumni Association to Woodland Artists Inc.
The IRS and non-profit advocacy groups like the Nonprofit Leadership Institute at the University of Kentucky tried to spread the word. But it's been difficult to educate people about the seriousness of this deadline, said Danielle Clore, the institute's director.
"A lot of groups have said, 'Well, I never had to file before so I guess I don't this time.' But they really do," Clore said.
IRS Commissioner Doug Shulman issued a statement Wednesday, after many nonprofits missed the filing deadline, to say that leniency may be possible for groups that act quickly.
"I want to reassure these small organizations that the IRS will do what it can to help them avoid losing their tax-exempt status," Shulman said, referring groups to the IRS Web site at www.irs.gov. "I urge these organizations to go ahead and file, even though the May 17 deadline has passed."
A group's deadline depends on how it defines its fiscal year. Those who follow the calendar year had the May 17 deadline. Others have deadlines later this year.
Groups can reapply for tax-exempt status if they lose it, Clore said. But it's a lengthy process that involves paperwork and a $750 fee.
Some groups listed as "at risk" are defunct, which is one reason the IRS wanted annual reports, said Lexington lawyer Foster Ockerman Jr., who counsels many local non-profits and sits on the board of the Nonprofit Leadership Institute.
"Until now, the IRS has had no idea who was still active and who hasn't been active in years," Ockerman said. "A lot of people have started small charities and never officially closed them, so they're still on the books."
John Hays, another Lexington lawyer, said he would scramble to file the necessary tax form for Abiding Hope, a non-profit he and several Catholic church friends started to support a nun helping Congolese refugees resettling in South Africa. The non-profit's address is his law office.
"It's pretty good work, but it's very modest. We're not talking about a lot of money here," Hays said. "I had no idea that we needed to file anything."
An updated list of non-profits at risk of revocation can be found at the Web site of the National Center for Charitable Statistics, which is at http://nccs.urban.org.