The IRS earlier this month revoked the tax-exempt status of 275,000 non-profit organizations, including several affiliated with USC, that failed to file required paperwork.
The Pension Protection Act of 2006 requires that non-profit organizations, which are those that don’t distribute earned money to directors or investors, file an annual report with the IRS to remain tax-exempt. Under the law, organizations that don’t file for three consecutive years lose their tax-exempt status, and 2007 was the first year filing was required.
Organizations on the IRS’ automatic revocation list must re-apply for tax-exempt status or they will be required to file a federal tax return and to pay federal income taxes. Additionally, any donations given to organizations that do not regain tax-exempt status will not be tax-deductible for the donors. Donations made before the IRS posted its revocation list are still tax-deductible.
The IRS believes most of the 275,000 organizations on its list are defunct, but this is not the case for all the USC groups listed.
David Walsh, a professor of psychology and an adviser for Psi Chi, a psychology honors society, said he believes the group’s tax-exempt status was revoked because of confusion on the part of the IRS.
“The central office of Psi Chi files the tax exempt status reports for local chapters, and the IRS often fails to cross coordinate those filings,” Walsh said in an email. “I am looking into the matter, but suspect the present notice is an IRS computer operating without supervision.”
Other groups say their inclusion on the list was not an error and isn’t a problem.
For example, the earth sciences honor society Sigma Gamma Epsilon appears on the IRS’ auto-revocation list, but Josh West, an assistant professor of earth sciences and an adviser for the group, said because Sig Gam doesn’t generate revenue, its tax status is largely irrelevant.
“I am not sure the organization was really taking advantage of its tax-exempt status in the first place, so I don’t see the new IRS rules really having much effect in the case of this society,” West said in an email.
Most student organizations don’t file for non-profit status, according to Heather Larabee, USC’s assistant dean of students and director of campus affairs. Larabee added that the decision is left up to the individual groups.
“It is not that common at all. Many look into the process, but very few follow through with the paperwork,” Larabee said in an email.
The groups that do pursue tax-exempt status as non-profits often do so because they want to be able to collect donations or because they are part of a larger national organization, as is the case for Psi Chi and several other fraternities and sororities that file as non-profits.
Several other USC-affiliated organizations ended up on the IRS’ list: the Intersorority Parents Council, SC Paw, the Staff Retirement Association, dental honors society Omicron Kappa Upsilon and medical honors society Alpha Omega Alpha. SC Paw appears to be defunct; the Staff Retirement Association is in the process of filing for reinstatement as a non-profit, according to Janette Brown, the executive director of USC’s Emeriti Center. Representatives from the other groups were unavailable for comment.
For groups looking to regain their non-profit status, the IRS is planning to update its revocation list monthly. Organizations that earn less than $50,000 annually can also apply for transitional relief, which decreases the cost of re-applying for tax-exempt status.