February 27, 2017; Rocky Mount Telegram

Lighthouse Home has been in operation for 17 years, providing services as a women’s shelter in the Rocky Mount area of North Carolina. It has been a modest organization throughout its history, with a small budget and operating out of a single home with six current residents being served. The nonprofit received its tax exemption as a 501(c)(3) public charity in 2009, but lost it in May 2012. The announcement by the IRS on its website, however, was not made until almost a year later, in February 2013.

Recently, the charity announced the IRS had reinstated its tax-exempt recognition. But the story as reported here reflects the reality of many small organizations, which have only so much time and energy. Sometimes, administrative details fall by the wayside; the decisions made or not made, actions taken or not taken, bear a dear cost in time and energy later.

According to the nonprofit’s director, Vanessa Rorie, Lighthouse Home lost its exemption because it wasn’t raising funds. However, according to the IRS, the organization’s exemption was automatically revoked due to its not having filed a Form 990 for three consecutive years. Especially with the advent of the Form 990-N “postcard return,” a nonprofit can make a basic annual filing indicating it is still in business, regardless of its annual revenue or the extent of its operations.

Rorie also said she saved the $850 to pay the IRS Form 1023 application fee to apply for the nonprofit’s tax exemption to be restored. This was apparently necessary, because Lighthouse Home now has a goal to raise $100,000 this year, though Rorie also said she had no fundraising goal in mind when she applied for reinstatement. If the fundraising goal were only $50,000 a year for the next three years, the nonprofit could have applied using the Form 1023-EZ and only had to pay a $400 application fee. Finally, the nonprofit’s reinstatement of tax exemption has not yet been posted to the IRS website. Reinstatement may take some time to show up online, so Rorie and Lighthouse Home should be prepared to furnish its IRS determination letter to the local businesses and other donors it is now soliciting for gifts in order to document its reinstated tax-exempt recognition.

Navigating the IRS regulations associated with nonprofit tax exemption isn’t easy, especially for very small nonprofits where program services may crowd out administrative compliance duties. Our hope is that Lighthouse Home will reach out to a prospective board member or nonprofit resource that can help it keep up with required federal and state regulatory filings. Administrative compliance is a key component of mission fulfillment, as Lighthouse Home has learned.—Michael Wyland