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NAACP branches get IRS tax-exempt status restored, civil rights group says

The North Carolina NAACP and hundreds of other state and local branches are back in good standing with the Internal Revenue Service after spending months on a list of nonprofits that lost their tax exempt status.

The IRS erroneously placed branches across the country on its revocation list, says a letter from the national NAACP obtained by The News & Observer. It did so after erroneously concluding that the groups had not filed required tax forms, the letter says.

Regaining good standing means NAACP chapters, including the North Carolina state conference, can raise money without risking having to pay taxes on donations. They can also avoid the stigma that can come with losing good standing.

News of that fix in North Carolina comes as the state NAACP is in the midst of dramatic, internal upheaval.

One of the few positives heard on a recording of a heated NC NAACP meeting last week was executive director Da’Quan Love saying the state conference could begin fundraising again. He described fundraising plans that include reaching out to potential major donors.

“Now that the IRS situation has been resolved – as you know we couldn’t raise money while we were dealing with that situation – we are in the process of creating a donor prospectus, as well as giving materials for our new donor cultivation.”

A dozen executive committee members resigned during or after the meeting, concerned about Love’s employment contract and the treatment of Treasurer Gerald Givens Jr. and Secretary Sylvia Barnes. The two officials were suspended by the national NAACP last month for reasons the executive committee members at the meeting said are suspect.

Several NC NAACP leaders resign over dispute with out-of-state administrator

Origin of IRS trouble

The IRS takes punitive action if nonprofits fail to submit tax documents to the IRS for three consecutive years.

What wasn’t clear to the IRS, is that branches file their financial information with the national NAACP which combines the information into a group return, the Feb. 28 letter sent to NAACP officials says.

“After weeks of correspondence and research, we learned the cause of the erroneous auto-revocations,” the letter from Janette McCarthy Wallace, the NAACP’s general counsel said. “The NAACP group’s FY (fiscal year) 2019 and FY 2020 Forms 990 were inexplicably never registered on the IRS’ computer system.”

The IRS automatically issues auto-revocations when returns don’t show up over three years. That happened in August, before the national NAACP filed its group return in the 2021 fiscal year, Wallace wrote.

“A helpful team of IRS staff members has since manually uploaded the returns and all of the data regarding subordinate units into the system. They informed us that all of the Units and State Conferences, including the North Carolina State Conference, that were auto-revoked in August are now listed in the IRS Business Master File,” she wrote.

IRS spokesperson Robyn Walker said privacy laws prevent it from speaking about a specific organization.

Hundreds of branches involved

The N&O spotted the tax-exempt status revocation last year while reporting a story about financial problems within the NC NAACP conference. The N&O later discovered roughly 600 hundred state or local branches, including more than 40 in North Carolina, also had their tax-exempt statuses revoked. That pointed to a different problem.

The IRS took action against NAACP organizations around the country at the same time, including state conferences in California, Texas, Ohio, Illinois, Missouri and Kansas. Local branches affected included those in Washington, D.C., New York City, Sacramento, Kansas City, Missouri; and Kansas City and Wichita in Kansas. Also affected in the South were groups in Myrtle Beach and Rock Hill, South Carolina; Macon, Georgia; and Biloxi, Mississippi.

National NAACP officials then acknowledged the IRS may have placed many more branches on the revocation list.

Losing the tax-exempt status means the nonprofit could have to pay state and federal taxes on net income. The federal corporate tax rate is 21%, while in North Carolina the state rate is 2.5%.

That designation can have wider consequences, said David Heinen, the vice president for public policy and advocacy with the N.C. Center for Nonprofits.

While donors would not be eligible for tax breaks because the branches are considered social welfare organizations, or 501(c)(4)s, under federal law, a revocation might cause donors to avoid giving.

“It can kind of taint the brand,” he said.