Audit: Denver nonprofit Rocky Mountain Human Services misused $1.8 million in tax payer dollars

 An audit released Thursday reveals that administrators at a Denver-based nonprofit used tax dollars for personal expenses instead of using the money toward helping those who need it the most.

The audit was conducted by Denver’s city auditor Timothy O’Brien after questions were raised regarding spending at Rocky Mountain Human Services, which provides services for developmentally disabled children and adults around Colorado and parts of Wyoming.


The nonprofit receives more than $12 million a year from a city mill levy that comes from property tax revenue.

The contract, managed by the Denver Department of Human Services, specifies that money can only be used for their services specifically in Denver.

The audit shows some $1.8 million were used instead to provide employees with personal Internet services and Costco memberships, among other things. The report also points out the agency used money for an office in Colorado Springs, an international trip, and even almost $50,000 on meetings.

“I think it’s clear that funds that could have been spent on the people in the program were not spent on people in the program,” said O’Brien.

The audit also showed the chief executive director's yearly salary of $500,000; O’Brien said the amount is double the salary of the next highest paid director at a similar nonprofit in the state.

The agency's board of directors have since fired the executive director and chief financial officer, O’Brien said.

“We regret that there was some misspending of tax payer funds,” said Sharri Repinski, who now serves as the agencies’ interim executive director.

She spoke at a public forum held Thursday after the audit was released, but she wouldn’t, however, specify why it took months or event longer for the board of directors to notice the violations.

Instead, Repinski told Denver7 that the organization was in a “financial crisis” with more than $8 million in losses. Some 70 positions were eliminated to make up for the deficit.

“We eliminated those expenses that were not necessary,” she said.

She said employees no longer receive online service or Costco memberships.

Administrators at Rocky Mountain Human Services will renegotiate their contract with the Denver Department of Human Services at the beginning of 2016.

IRS Delays in Acting on Applications for 501(c)(4) Tax Exemption Persist

Five years after the IRS first began identifying “Tea Party cases” for special scrutiny, and almost two years after Lois Lerner’s apology and the Treasury Inspector General’s report detailing the targeting of applications for tax exemption from conservative-sounding groups, Karl Rove’s Crossroads GPS and at least five other groups are still awaiting determination letters from the IRS.

The article quotes both supporters and opponents of the organizations’ missions criticizing the IRS for taking so long to reach a decision on the applications.

“It’s inexcusable. Justice delayed is justice denied,” a former IRS official said. “A disgrace,” according to Paul S. Ryan of the Campaign Legal Center.

The groups cited in the Politico article are 501(c)(4) “social welfare” organizations. Unlike other types of tax-exempt entities, social welfare groups can operate without first seeking IRS approval of their tax-exempt status. However, there are several reasons that make applying for tax-exempt recognition advisable for these groups, including tax implications for donors. The lack of final IRS action on applications has dried up donations and severely restricted operations by many of the groups mentioned in the article. Former IRS official Marvin Friedlander refers to the process as “death by bureaucratic delay.”

Bureaucratic delays were cited prominently in the TIGTA audit report released in May of 2013. The IRS took no action on “Tea Party cases” for more than a year while IRS headquarters staff considered how best to handle the applications. Many groups singled out in this process were sent one or more questionnaires from the IRS asking (according to the inspector general) “inappropriate questions” and requesting items including donor lists, membership lists, Facebook and web site printouts, as well as to state the future intentions of any leaders or members to seek public office.

One of the few errors in the Politico article was its assertion that progressive groups as well as conservative ones were targeted by the IRS. As NPQ reported in July 2013 and included in a September 2013 update on the IRS scandal, the Treasury Inspector General for Tax Administration (TIGTA) found only one of five “be on the lookout” (BOLO) memos that included the term “progressive,” and that BOLO was never made active by the IRS.

The IRS claims that it has fulfilled the TIGTA’s recommendation that long-pending applications in 2013 be expedited, but doesn’t comment on why a few groups, including one of the largest and best-known 501(c)(4) organizations, have not yet received a final determination.

Unlike charities, social welfare groups can’t bring legal action against the IRS if it takes too long to approve their applications for tax exemption. So the groups either remain in limbo or choose to dissolve and, in at least one case, reorganize under a different corporate name and start over. Some have placed money in reserve to pay state and federal taxes should their applications ultimately be denied (in some states, federal tax exemption affects state tax treatment). This is a tough message for both boards and donors, as groups have money on hand but are afraid to spend it, and donors know that a potentially significant part of their gifts may need to be warehoused pending a decision from the IRS.

Regardless how one feels about 501(c)(4) organizations in general or the activities of particular groups, any nonprofit should expect an impartial IRS determination on their tax exemption, to borrow a phrase, with all deliberate speed. The continued delays reported by Politico are yet more evidence that we have a long way to go before the IRS scandal is put behind us.

2014 IRS Form 990-N Now Available to Nonprofits for No Charge Through Aplos Software

Nonprofit organizations are now able to prepare and e-file their 2014 Form 990-N with Aplos Software’s user-friendly online software for no charge. To maintain tax-exempt status, The IRS requires organizations with less than $50,000 in annual receipts to submit this annual informational return.

Aplos Software, a web-based software and authorized IRS e-file provider, announced today that its tax preparation and filing software, Aplos e-File, is now accepting IRS Form 990-N returns for the 2014 fiscal year. Form 990-N (e-Postcard) for the current year can be filed for free and prior years can be filed for $19.99 per return. The web-based tax preparation software can be accessed at https://www.aplos.com/irs-form-990-efile.

Form 990-N is a short electronic return for organizations whose annual receipts are normally $50,000 or less. Aplos e-File takes the tax-exempt organization through the form step-by-step, provides relevant tips and guidance, and ensures that all needed information is included. When complete, Aplos e-File submits the return electronically to the IRS and provides a copy of the return for their records.

“Effectively managing a nonprofit starts with being up-to-date with all the required IRS returns to maintain tax-exempt status,” said Tim Goetz, CEO and co-founder of Aplos Software. “We’ve streamlined the 990-N process for nonprofits by making it simple and free to use. As a result, these organizations can confidently submit their forms and continue to move forward with their mission.”

The deadline for submitting Form 990-N is the 15th of the fifth month after the close of the organization’s tax year. Nonprofits that start a new fiscal year on January 1 are now eligible to submit their 2014 return and their Form 990 filing deadline is May 15, 2015.

If an organization fails to file the form three years in a row, the organization will automatically lose its tax-exempt status with the IRS. There are no penalties if a Form 990-N is submitted late. Visit http://www.irs.gov for more information about annual reporting requirements.

Organizations that do not need to file the IRS form include organizations that are part of a group return, churches and their auxiliaries, conventions or associations, and organizations that are required to file a different return.

Princeton Says Colleges at Risk From Tax Court Ruling

Princeton University lost a bid to dismiss a lawsuit seeking to rescind its New Jersey property-tax exemption for 2014, a ruling that could cost the school millions of dollars and jeopardize the tax status of all nonprofit colleges.

Tax Court Judge Vito Bianco ruled Thursday that a lawsuit by four residents of the town of Princeton will go forward, lawyers said. They sued to revoke the school’s tax exemption, in part because it shares royalties with faculty, mostly from a patent that Eli Lilly & Co. turned into the cancer drug Alimta. The judge didn’t rule on the merits of the case while rejecting the university’s claim that the case should turn on whether its “dominant motive” is to make a profit.

“He’s making it clear that the test for losing tax-exemption status is whether these institutions engage in significant commercial conduct,” Bruce Afran, an attorney for the residents, said in a telephone interview. “This case will ultimately affect the tax-exempt status of many universities.”

Princeton, the fifth-richest U.S. university and among the most selective, said it will immediately appeal. The oral ruling by Bianco wasn’t immediately available in court records.

Arguments by the residents “potentially jeopardize” all nonprofit institutions, including schools, hospitals, charities and houses of worship, the university’s general counsel, Ramona Romero, said in a statement.

Princeton patented a compound by a chemistry professor that Lilly used to create Alimta. The school reaped $524 million in license income from 2005 to 2012, mostly from Lilly, according to court records. It used part of the money to build a new chemistry building and pay $118 million to faculty through 2011 beyond their salaries.

The town of Princeton is also a defendant in the case and has taken no position on the litigation, Afran said.

The case is Fields v. Trustees of Princeton University, 5904-14, Tax Court of New Jersey (Morristown).

No Board? No Tax Filings? No Problem! Connected Nonprofit Makes Hay in the Bronx

Any community-based nonprofit that can convince powerful state legislators to appropriate funding to their programs is in an admirable position. But it’s still the public’s money, and you had better deliver, or your work is just another example of graft and corruption.

The New York Daily News reports that N.Y. Assembly Speaker Carl Heastie steered more than $600,000 to a Bronx nonprofit that had no official board and filed no tax returns for years while receiving public funding and, ultimately, declared bankruptcy.

The Bronx Business Alliance (BBA) stopped filing its 990s after the 2008-09 tax year, when it reported a deficit. However, Heastie kept funding them—his final grant was for $115,000 in 2009-2010, while other politicians provided hundreds of thousands of dollars more in 2010-2011.

The group went out of business in 2012, according to the Alliance’s board chairman during the time Heastie was supporting it; he owns a storefront in one of the neighborhoods the association targeted for improvement.

It gets worse, according to the paper: In 2010, the BBA tried to get a state grant to renovate four Bronx buildings owned by a board member of a nonprofit the association was partnering with. The state awarded the $200,000 grant, but the building owner ultimately had other plans for the property.

Heastie’s grant of $115,000 in 2009-2010 was the last round of money the group received. Other Bronx politicians sponsored money in 2011, but then-Gov. David Paterson stopped the appropriations for the BBA and other similar projects.

Because the group stopped filing tax returns, says the Daily News, it is unclear what happened to all the money or who was overseeing the funds, despite state and federal laws requiring transparency. The Speaker responded to the story, saying that “it wasn’t his responsibility to follow up and see if the public dollars he’d doled out were spent appropriately by the association.”

The group told state funders it would use the money to give “start-up assistance” and “business plan development” advice to local small business owners. Heastie placed the blame for lax oversight on the various state agencies charged with administering the grant funds.

Meanwhile, some individuals listed as board members contacted by the paper said they were not board members in any official capacity

IRS Rules on Domesticated Organization and Tax-Exempt Status

Late last year, the Internal Revenue Service (“IRS”) issued a letter ruling, PLR 201446025, providing that, in certain instances, a nonprofit corporation exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and incorporated in State A was not required to file a new application for tax-exempt status (IRS Form 1023) when it changed its domicile to State B by filing “Articles of Domestication” in State B and “Articles of Conversion” in State A.

In the ruling, the law of State B stated that the corporation’s filing of “Articles of Domestication” would not affect its original incorporation date. The law of State B also stated that the corporation would be considered the same corporation as the one that existed under the laws of State A, the state in which the corporation was previously domiciled. Similarly, the governing law of State A stated that following the corporation’s filing of “Articles of Conversion,” the corporation would continue to exist without interruption and be able to maintain its same liabilities and obligations.

The change in domicile did not affect the corporation’s charitable purpose or operations.

The following five points were integral to the IRS’s ruling:

the nonprofit corporation was not altering its basic organizational form;

the nonprofit corporation was filing an amendment to its formation document, rather than filing a new one;

both states involved had laws providing that a domesticated nonprofit corporation would be the same corporation that existed under the laws of its original state of incorporation (Indeed, the IRS noted that its ruling would be different if a new corporation were created in State B and the nonprofit corporation merged into it or transferred assets to it);

the nonprofit corporation had the same liabilities to the IRS and others as it had before its change in domicile; and

the nonprofit corporation maintained the same incorporation date.

This ruling does not change the IRS’s position that a nonprofit corporation that reincorporates in a new state is a new entity that must file a new application for tax-exempt status. In fact, the ruling makes clear that if a nonprofit corporation’s submission of “Articles of Domestication” to change its state of domicile causes it to become a new organization, then the corporation may not rely on its prior tax-exemption recognition and must file a new application for tax-exempt status. If such change of domicile does not cause the corporation to become a new organization, however, then the corporation may rely on its previous recognition of tax-exempt status and does not need to file a new application for tax-exempt status.

Although the ruling may not be used or cited as precedent, it seems to suggest that, depending on state law, a nonprofit, tax-exempt corporation can, in fact, reincorporate in a new state without filing a new application for tax-exempt status. If a corporation wants to change its state of domicile without filing a new application for tax-exempt status, it must first ensure that the new state has a domestication statute that provides that the corporation would be the same as the initial corporation.

Organizations seeking to change state of domicile should take great care to understand the relevant state laws and realize that, in many cases, a new application for tax-exempt status may still have to be filed. As always, changes to an organization’s governing documents should be reported on IRS Form 990 as significant changes.

Nonprofit beat: Charities debate extending donation deadline

Should the deadline for charity tax deductions be extended to April 15, so tax filers can make last-minute donations?

Or would it take a bite out of the holiday and year-end giving blitz that nonprofits have come to enjoy?

That’s been a key part of a debate among philanthropy policy wonks in Washington for years. But last year, the provision to extend the donation deadline to April 15 was approved by the House as part of its America Gives More Act. It was not included in Senate legislation, and therefore didn’t have legs.

It’s unclear whether the provision will be part of any congressional action this year. But the notion that tax filers, possibly flush with unexpected tax refunds, could donate to charities retroactively finally has some traction, proponents say.

The idea is not without precedent, wrote Eugene Steuerle, a senior fellow at the Urban Institute in Washington, D.C. President Obama signed a provision allowing donations to be made for Haiti earthquake relief up until March 2010 to be deducted on 2009 tax returns. Likewise, George W. Bush permitted donations for tsunami relief made through Jan. 31, 2005, to be deducted in the previous year.

He called tax filing time a “window of opportunity.’’ Americans know their total annual income, their projected taxes and how charitable donations could both benefit their bottom line and those of charities.

“When filing taxes, they [Americans] can calculate exactly how much tax an additional donation would save,’’ Steuerle wrote.

While endorsed by charities such as the national Meals on Wheels Association, the April 15 deadline was not broadly endorsed by charities. Mega-charities such as United Way of America, for example, didn’t take a position on it.

Some nonprofits feared the effect on the coveted year-end giving. Others worried that it would simply shift the time frame for making donations, creating delays that could clog their cash flow.