ARC seeks to confirm tax-exempt status, raise programming endowmentA recent class of the Atlanta Regional Commission's Model ARC program. The ARC may raise funds for scholarships to that and other leadership programs if its tax-exempt public charity status is confirmed. (Photo from ARC)
The Atlanta Regional Commission is seeking to confirm its little-known status as a tax-exempt public charity with an eye on raising private philanthropic funds to endow surveys and scholarships to be more inclusive.
“Like a lot of organizations, we have always focused on equity, but we’ve been looking at ways we can improve access to a lot of our initiatives,” said ARC spokesperson Paul Donsky.
While presenting the review as routine, the ARC is also allowing for the possibility that the U.S. Internal Revenue Service could deny the tax-exempt status, which was last affirmed in 2007. However, one legal expert in tax-exempt organizations says such status is hard to lose and the ARC is likely in good shape to begin such fundraising.
“As the IRS is unpredictable, we don’t know for sure how this will be resolved,” said Donksy.
Formed in 1971, the ARC is an intergovernmental regional planning agency for 11 metro-area counties and the City of Atlanta. As a governmental body, the ARC already does not pay taxes. But in 1978, the ARC also obtained formal federal tax exemption under Sections 501(c)(3) and 509(a)(1) of the U.S. Code as a public charity.
That status, which allows tax deductions for donations to the ARC, is not mentioned in the organization’s bylaws and annual financial reports and does not appear on its website. Donsky said current ARC leadership does not know why the organization originally sought the public charity status and has not previously used it for this type of fundraising.
ARC Executive Director Doug Hooker, in a June staff memo obtained by SaportaReport, said the organization wants to affirm that tax-exempt status because it “is important strategically for future fundraising initiatives: goals such as getting a large philanthropic donation (or donations) to establish an endowment” for the annual “Metro Atlanta Speaks” survey and possible scholarships to ARC programs. The survey and scholarships would be separate pools of money, Donsky said.
“There’s a cost to conduct our annual public opinion survey, which is scientifically valid to the county level,” said Donsky. “We are exploring ways of securing outside financial support for this important initiative to ensure we can keep it going and even expand the survey.”
And the scholarships could be used to help low-income people and organizations attend such programs as the Regional Leadership Institute, Arts Leaders of Metro Atlanta and Model ARC. “We are exploring ways of making our leadership programs affordable to people who otherwise may not be able to afford them,” said Donsky.
“We have a defined government role, but we also do these regional civic initiatives as well,” said Donsky. “And we’re very proud we can wear those hats.”
Donsky said that if the IRS confirms the ARC’s status, the organization might still decide not to raise the money for such endowments.
An IRS document confirming an organization’s tax-exempt status, known as an “affirmation letter,” is often sought by donors to make sure their contributions to such programs will be deductible. (A version documenting the status for the organization’s own use is called a “private letter ruling.”) The ARC’s most recent affirmation letter, provided by Donsky to SaportaReport, is dated May 31, 2007 — over 14 years ago.
Donksy would not provide details on exactly why the ARC is concerned about its status, citing reviews by the organizations’ lawyers, but said it is not based on any specific legal change. “We are currently a 501c3 in good standing, but we are simply seeking an affirmation from the IRS on that standing,” he said.
However, Hooker’s staff memo spoke in terms of strong caution and the possibility of losing the tax-exempt status. “Resolving our tax status with the IRS, for once and for all — whether or not we can be affirmed as a 501(c)(3) organization…” is the review underway, Hooker wrote.
Asked about that language, Donsky acknowledged the ARC is unsure what the IRS will say.
Several metro Atlanta legal experts in tax-exempt issues did not respond to comment requests. An out-of-state expert willing to offer perspective was Sandy Tarrant, a professor at Boston College Law School in Massachusetts who has worked in private practice on tax-exempt and nonprofit organization issues. Tarrant is not familiar with the ARC’s inner workings, but gave a general opinion after reviewing its IRS registration and a recent financial audit.
Tarrant said it’s unusual, but perfectly legitimate, for a government body to also have tax-exempt charity status. And she saw no obvious reason for the ARC to be worried about losing its tax-exempt status. She noted that the IRS website currently lists the ARC as a public charity.
Tarrant said it is normal for tax-exempt organizations to reaffirm their status, especially older ones that may have changed mission or focus — a possible concern for the ARC as it considers getting into endowment-building.
The ARC, Tarrant said, also may have concerns about technicalities that she believed would not be problems. One is how a change in the blend of an organization’s funding sources can alter its definition from a “public charity” to a “private foundation.” But regardless, it would still be allowed to take tax-deductible contributions, just with different percentages allowed to be deducted, and Tarrant said it is likely that ARC’s large proportion of government funding would keep it a “public charity.” (Donsky said the ARC specifically does not intend to become or establish a foundation.)
Another common concern is a relatively recent rule that nonprofits can lose their status if they don’t frequently file a digital version of Form 990 tax returns; but government organizations like ARC are exempt from Form 990 filing requirements.
It’s certainly possible for a tax-exempt organization to run into trouble with the IRS. “But generally speaking,” Tarrant said, “the IRS’s view is, if your 501(c)(3) status is valid, it’s valid… at the end of the day, it’s really hard to lose it.”