Nonprofits flagged by IRS still get property-tax pass in Philly
January 9, 2013By Holly Otterbein
Philadelphians have groaned about their property taxes rising for the past three years. At the same time, some nonprofits have gotten tax breaks that they may not deserve.
The Daily News/WHYY found that Philadelphia is exempting at least six nonprofits from property taxes, even though their tax-exempt status has been revoked. Two fraternities that also lost their status are leasing tax-exempt properties from the University of Pennsylvania.
The nonprofits were penalized because they failed to file tax returns with the IRS for three years in a row.
If the properties in question were taxed, they would generate more than $20,300 this year, and likely much more once the city's reassessment is done. Some of them are extremely undervalued.
City officials didn’t know the nonprofits had lost their status until a reporter told them.
Nicholas Cafardi, a charity-law expert at Duquesne University, said the city should take another look at those exemptions.
“It certainly to me is a red flag,” Cafardi said. “If they’re not filing with IRS, what are they doing to maintain their public charity status in Pennsylvania?"
In fact, it’s unclear whether one of the flagged nonprofits, known as Consultation and Counseling Services, still exists. It’s gotten a pass on property taxes since 1995.
Consultation and Counseling Services once transformed a former crack house into a home for recovering drug addicts. But now its phone number is out of service. When a reporter visited, a man who answered the door said it wasn’t a drug recovery house. He refused to provide information about himself or the owner.
“Come back later and maybe you see the person,” he said cryptically.
No regular audits of tax-exempt properties
There might be an explanation for Philadelphia missing these red flags. The city doesn’t regularly audit every tax-exempt property. In fact, the city has neglected to check on the tax-exempt status of some groups for more than a decade.
Cafardi said that’s a mistake.
“They’re asking the taxpayers of Philadelphia to subsidize them. Because they’re not paying taxes, you’re paying more,” he said. “We’re willing to do that if they, in fact, are a public charity. But that’s not a given. You have to establish that you are.”
Michael Piper, deputy administrator of the city’s Office of Property Assessment, said nonprofits are thoroughly screened when they first apply for an exemption. The city also inspects their property top to bottom.
He admitted that the city could do more after that initial step, though. He’d like to audit tax-exempt properties more regularly. But that’s easier said than done. It would take more resources, he said.
Piper also acknowledged that the city should audit nonprofits flagged by the IRS. However, he emphasized that if an organization loses its standing with the IRS, that doesn’t automatically disqualify it from a city exemption.
“The city of Philadelphia doesn’t have a direct communication with the IRS in terms of them letting us know when an exemption has been removed,” he said. “That in itself is something that we can, going forward, hope to have.”
The nonprofits that lost their tax-exempt status range from fraternities to church-related organizations. Only a few groups responded to requests for comment.
Sigma Phi Epsilon’s president referred questions to the University of Pennsylvania.
Jeffrey Cooper, Penn’s vice president of government and community affairs, said that both frat houses deserve the exemption because they’re being used for student residences.
Leaders from both the Baptist Women’s Center and the African American United Fund said they are currently trying to get their tax-exempt status back.
Pastor Rob Burns of the community nonprofit ReaLife Ministries Inc. said it no longer exists. He said the nonprofit plans to transfer ownership of its property to an exempt church of the same name.
The remaining four nonprofits didn’t provide comment.
$21.5 billion of Philly's property value untaxed
Critics argue that the city could be losing much-needed tax dollars by not keeping a closer watch on exemptions. A 2006 study found that Philadelphia nonprofits own a larger percentage of tax-exempt property, by value, than any other big city in the country.
A whopping $21.5 billion of Philadelphia’s property value is not taxable because it is exempt or abated, according to a recent reassessment.
Mayor Michael Nutter is eyeing a 1.3 percent property-tax rate for next year, meaning those exempt and abated properties could generate nearly $280 million in taxes. If they didn’t get a pass, that is.