Cedar Rapids arts organization CSPS loses tax-exempt status for not filing tax returns for 3 years

CEDAR RAPIDS — After leaders of the pioneering arts and culture organization CSPS spent over a year wading out of deep debt, the IRS informed the group that its tax-exempt status was revoked for falling behind on filing tax returns — marking another bump in its road to financial recovery.

As debt mounted upward of $100,000 in 2019 and threw CSPS leadership in flux, the organization had not filed its returns for the 2018, 2019 and 2020 tax years — resulting in an automatic revocation of its 501(c) (3) status that keeps one of the city’s most iconic organization tax-exempt.

Automatic revocation of a group’s tax-exempt status happens under federal law when an organization that is required to file an annual return, typically Form 990, or submit an annual electronic notice, does not do so for three consecutive years.

The revocation took effect Nov. 15, 2020. But Executive Director Taylor Bergen said CSPS was not notified of it until he received a letter July 28 from the IRS.

Bergen said he had not received correspondence from the IRS about the revocation during that time frame, but CSPS had been in communication with the agency before the revocation because it had fallen behind on filing tax returns.

CSPS has worked on catching up with the IRS since 2019. But while already grappling with its leadership transition, the COVID-19 pandemic dealt another blow in 2020 — forcing nonprofits, including CSPS, to adjust operations to stay on sound financial footing.

Bergen began as interim executive director in October 2019, after the resignation of its longtime leader and co-founder F. John Herbert, and served until Jan. 1. The organization used to be known as Legion Arts but changed its name to CSPS in the transition. The board of directors continued to search for a permanent leader, but months later ultimately chose Bergen to stay at the helm.

After Bergen received the IRS letter, he informed the board of the organization’s tax-exempt status revocation.

“We were moving towards being caught up, and in some of that transition, we dropped the ball a little bit,” Bergen said. “When I came back, I did not follow up probably to the extent that I should have to make sure that the things that were being executed as I stepped away and as there was a bit of a leadership void were being taken care of.”

According to the most recent available filings from fiscal 2017, the budget year ending June 30, 2017 — while Herbert was still in the top role — the organization reported revenue of $364,923. Bergen’s signature was on this tax return, which a stamp indicates the IRS received in February 2020, indicating the group has been behind on filing tax returns for some time.

Notification of the revocation comes after the group’s nonprofit status was at the center of a separate controversy in a three-way Cedar Rapids mayoral race.

Just two weeks earlier, Mayor Brad Hart left Bergen a voicemail using a profanity to threaten withholding public funds in the future for appearing to host a campaign event for his political rival, which he said was a violation of the group’s 501(c) (3) status. CSPS’ board of directors voted to cancel the show after Hart left the voicemail.

Arts organization Improv Incubator was slated to hold an event July 17 in CSPS Hall in NewBo, where CSPS is based, featuring Advocates for Social Justice Vice President Amara Andrews. She is challenging Hart in the Nov. 2 election to serve as the city’s top elected official. Another candidate, Iowa Women Lead Change CEO Tiffany O’Donnell, also is running for mayor.

Reinstating tax-exempt status

The organization just this spring paid off its debt to artists and others as CSPS, under Bergen’s leadership, had signed agreements with groups such as SPT Theatre, Revival Theatre Company and the Improv Incubator as well as worked to fundraise and secure grants.

Since receiving the IRS notification, Bergen and the CSPS executive committee have contacted accounting professionals, received a list of what needs to be done and hired extra help to complete the tasks. That work is expected to be done in the next four to six weeks.

Bergen said he envisions having an ongoing contract with professionals to help the organization meet the requirements of being tax-exempt in the future.

There likely will be penalties for filing tax returns late, Bergen said, and potentially additional penalties, but CSPS anticipates being able to have its status reinstated.

In the meantime, Bergen said CSPS has the financial capacity to withstand not having the ability to accept donations for tax-deductible purposes. He said no grants have been returned because of this automatic revocation, but CSPS has withdrawn from grant opportunities.

Rick Cohen, chief operating officer with the National Council of Nonprofits, said organizations that have their 501(c) (3) status automatically revoked must file Form 1023 with the IRS to be recognized again as tax-exempt.

It can take from a few weeks to several months for a group’s status to be reinstated, Cohen said, depending on whether the IRS has an extensive backlog. Plus, he said IRS officials may have additional questions before determining whether to confer tax-exempt status upon an organization, and there may be more state-level requirements.

"The IRS usually has a backlog, and right now they're dealing with even more of a backlog from all of the pandemic-related additional duties that the IRS has taken on, not to mention the fact that their offices were closed for a few months last year for safety,“ Cohen said.

Nonprofits ‘can rebound’

Monica Vernon, a former Cedar Rapids City Council member who began to serve as CSPS board president in May, said board members have discussed implementing policies surrounding their review of filing tax returns, setting a firm time when CSPS will start working on the Form 990s and when the tax returns need to be filed. In this instance, the paperwork for one year was ready but had not been filed in time.

“It's like everything else we do — we need to systemize this so that our back office runs like clockwork, so that more attention can be paid to our mission,” Vernon said.

Vernon said CSPS has removed the donation box from its website for now because contributions are not currently tax-deductible. The group is communicating with supporters to let them know of their steps to chart a path forward.

“We're really sorry it happened, but I think rather than spending a lot of time on that, it's better to spend our energies figuring out how to get policies and procedures in place that make sure it doesn't happen again,” Vernon said.

Nonprofits may consider ensuring some members are familiar with nonprofit operations and filing requirements, or contracting with an accounting firm if the board lacks that expertise, Cohen said, to ensure the organization completes all the required filings.

Automatic revocation “is something that nonprofits can rebound from, many have rebounded from,” Cohen said. “In most cases, these auto-revocations are innocent oversights because somebody didn't know that a certain filing was required, and for those, it's just a matter of getting back into good standing.”

CSPS will continue with its planned programming to serve its mission of presenting progressive contemporary arts, Vernon said. Additional events, such as receptions, may be planned as well to help make up for any lost revenue.

With a “great slate of events coming up” and support from community members, as well as efforts to work through the organization’s financial management, Bergen said he feels “confident we will come out on the other side of this in a good spot and continue to move forward.”

“One thing that has always brought people to our organization is the art and music and community that our organization has provided, obviously proceeding me by three decades by our founders, and hopefully continuing into 2021 and beyond,” Bergen said. “I'm thankful for their support so far and I look forward to their support and continuing to work to be the best organization we can be for them and for the community.”

Comments: (319) 398-8494; marissa.payne@thegazette.com