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State to seek assets of defunct nonprofits

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The state attorney general’s office wants to know whether any of the 1,528 Hawaii groups that lost their federal tax-exempt, nonprofit status this week have assets that could be redistributed to other nonprofit organizations with similar goals.

The groups are among 275,000 organizations across the country that automatically lost their tax-exempt status Wednesday because they did not file legally required annual reports for three consecutive years, the Internal Revenue Service said.

“Many of these organizations couldn’t have even paid the light bill, but others likely have money devoted to their charitable missions,” said Hugh Jones, who supervises the attorney general’s Tax Division. “We’ll definitely follow up to make sure these charitable assets are properly disposed of.”

However, nonprofit groups such as Oahu Federal Credit Union were wondering how they ever got on the IRS list.

“It’s a mistake,” General Manager Bart Saxton said Thursday. “We were shocked to see our name on the list. We’ve been around since 1936, so you can imagine my surprise.”

Since 2007 all tax-exempt groups except churches have been required to file annual reports — or lose their exemptions three years after failing to file.

“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” IRS Commissioner Doug Shulman said in a statement. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors.”

The 1,528 groups represent about 20 percent of the 7,964 nonprofit groups registered in Hawaii, Jones said.

All of the groups have total combined assets of $17.8 billion, including Kamehameha Schools’ assets of about $6 billion, Jones said.

Many of the groups are likely small organizations that are now defunct, Jones said. But the attorney general’s office plans to identify any assets, then seek court approval to redistribute the funds to groups with similar objectives, Jones said.

The attorney general’s office would like to hear from officers of any of the groups to determine whether they’re running or whether they’re defunct and still have assets.

“If they’re still operating, donations are no longer tax-deductible,” Jones said.

Individuals representing groups on the IRS list won’t get in trouble with state authorities “as long as they weren’t putting the money in their own bank account,” Jones said. “None of that money should go into the pockets of the principals of these organizations.”

The IRS’ release of the names of groups set off confusion for some organizations.

Big Brothers Big Sisters of Kauai is included in the IRS list because it no longer exists. But Big Brothers Big Sisters of Honolulu expanded to Kauai three years ago to fill the need and continues to operate, said Dennis Brown, president and chief executive officer of Big Brothers Big Sisters of Honolulu.

“People don’t seem to know that much about them (the defunct group),” Brown said. “It can be confusing.”

The list also includes organizations such as the Hono­lulu Boy Choir, which has a website and voice mail. But no one returned telephone calls left by the Star-Advertiser on Thursday.

Organizations on the IRS list “still have the ability to cure this,” said Kelvin Taketa, president and chief executive officer of the Hawaii Community Foundation, which helps philanthropic organizations and nonprofit groups.

But Taketa suspects that most of the groups stopped operating long ago.

“There was a lot of deadwood that the IRS was clearing out,” he said. “Think about the number of small businesses that are started every year in our community and go out of business. This list is full of the nonprofit equivalent. Once you have your tax-exempt status, there’s no motivation to maintain it.”

The Hawaii Alliance of Nonprofit Organizations has been encouraging groups to comply with the requirement, which simply meant filling out a postcard and sending it to the IRS.

“Many of them may be inactive, but some of them are clearly still active,” said Jennifer Creed, director, member and professional development for the Hawaii Alliance of Nonprofit Organizations.

“It’s a pretty simple process,” Creed said. “For groups that are still operating, why would you risk losing your nonprofit status? It’s perplexing to me.”

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