Iowa charities lose tax-deductible status

CEDAR RAPIDS - Is the Youth for Forgiveness still out there?

That Cedar Rapids-based group and nearly 3,000 more small Iowa charities have lost their tax-deductible status for failing to register with the Internal Revenue Service, according to a list released by the IRS. Many of the not-for-profit agencies listed are likely defunct, but not all.

“The person watching that kind of missed it,” said Peter Teahen of Cedar Rapids.

Teahen is founder and president of Memorial Salute of Flags, the group that displays about 300 donated American flags from downtown streetlight poles every Memorial Day, Independence Day, and Veterans Day. The group also pays the cost of placing and removing the flags, which are stored at Teahen's funeral home.

“That's what we've done since the very beginning back in 1982,” said Teahen.

Back then, not-for-profits that raised less than $25,000 a year weren't required to file a Form 990 with the IRS. Congress changed the law in 2006 to require all charities to file - smaller groups could send in a form on a postcard.

Groups that fail to file a 990 for three consecutive years lose their tax exemption. For the small organizations facing the new requirement under the 2006 law, that deadline was May 15, and the IRS released its list of non-complying non-profits late last week.

The list for Iowa runs to 2,951 names. Many, perhaps most, are likely no longer active, said Richard Koontz, director of the Larned A. Waterman Iowa Nonprofit Resource Center at the University of Iowa.

“We haven't got a sense of these 3,000 in Iowa,” said Koontz. “Are there 500 that want to remain in existence? It's so hard to tell for sure what's really out there.”

The Iowa list includes 140-some American Legion posts, auxiliaries, and Legion-affiliated charities. Eastern Iowa Legion posts in Monticello, Maquoketa, Williamsburg, Tama, Springville, and Spillville are on the list. Efforts to contact those posts weren't successful, and no one was available for comment at the Legion's state headquarters in Des Moines.

Bob Untiedt, executive director Linn County Nonprofit Resource Center, said the organization mailed information about the new requirement to as many local charities as its staff could find.

“I think it's the IRS wanting to clean up their database,” said Koontz.

Loss of non-profit status means donations aren't tax-deductible, and the groups must now pay taxes on any revenues. Any retirement plans would also be taxable, “but again that's really extremely rare” for smaller charities, Koontz said.

Memorial Salute of Flags' annual budget runs about $1,000, mostly for liability insurance, Teahen said. He said the group mailed a solicitation letter to area businesses last year.

Small charities must pay a $100 fee to file lapsed Form 990s, Koontz said.

Noncomplying Nonprofits