NEW ROCHELLE, NY — After two weeks of stonewalling by the New Rochelle Fund for Educational Excellence related to tax code violations that resulted in revocation of its tax-exempt status, Talk of the Sound has filed a federal complaint with the Internal Revenue Service for tax code violations and fraud.
Other than a single-sentence, non-responsive statement issued by NRFund President Jonathon Stark, which failed to acknowledge the IRS action on May 15, 2021 to revoke the NRFund’s tax-exempt status, and the NRFund continuing to actively promote itself as a 501(c)(3) tax-exempt non-profit organization for more than six months after the revocation, the NRFund has refused to respond to questions or produce records for inspection and copying. The NRFund is required under federal law to produce for inspection during normal business hours its three most recent 990 tax forms and its filing to be be reinstated as a tax-exempt organization, a Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
Talk of the Sound has filed Form 13909, Tax-Exempt Organization Complaint (Referral) with the Internal Revenue Service. Boxes checked off in the form under Nature of Violation are as follows:
- Directors/Officers/Persons are using income/assets for personal gain
- Organization refused to disclose or provide a copy of Form 990
- Organization failed to report employment, income or excise tax liability properly
- Organization failed to file required federal tax returns and forms
- Organization engaged in deceptive or improper fundraising practices
Under Names of Persons Involved we listed, but not exclusively, individuals in positions of responsibility between 2016 to the present, Presidents Judge Matthew Costa and Jonathon Stark, Treasurers Derek Deutsch and Tom Livaccari, Vice President Dierdre Polow, Executive Directors Andrea Bauman and Sabrina Tobak.
After the NRFund met in a closed meeting at New Rochelle City Hall on the evening of Wednesday, December 8, the stonewalling continued.
Many nonprofits including the NRFund apply to the IRS for 501(c)(3) tax-exempt status in order to avoid paying income taxes and to become eligible for nonprofit benefits and opportunities. Official nonprofit status also benefits donors, who provide donations that act as a write-off at tax time. In order to qualify, an organization must request and receive a Determination Letter of Tax Exempt Status from the IRS and a file annual 990 tax form.
The last time the NRFund filed a 990 was 2017. As a result the IRS revoked the NRFund’s tax-exempt status on May 15, 2021 which was posted to the IRS auto-revocation database on August 9, 2021.
Perhaps the most significant unanswered question coming out of the NRFund board meeting is whether the organization will suspend operations until it gets its financial affairs in order, files four years worth of missing tax records and is restored as a tax-exempt organization. Other questions include whether the NRFund can spend money raised as a non-profit organization now that its a for-profit organization, will the NRFund have to file for-profit tax returns and pay taxes and what will that cost, and will donors have to refile their taxes to eliminate tax deductions they took related to the NRFund.
Then there is the existential question: should the NRFund shutdown altogether?
IRS Penalties for failing to file a 990 form can be substantial.
If an organization fails to file a required return by the due date (including any extensions of time), it must pay a penalty of $20 a day for each day the return is late. The same penalty applies if the organization does not give all the information required on the return or does not give the correct information.
The Fund’s 2018 990 form was due on November 15, 2018. It has been 1,122 days since November 15, 2018.
1,122 x $20 = $22,440.
The Fund’s 2019 990 form was due on November 15, 2019. It has been 757 days since November 15, 2019.
757 x $20 = $15, 140.
The Fund’s 2020 990 form was due on November 16, 2020. It has been 390 days since November 16, 2020.
390 x $20 = $7,800.
The Fund’s 2021 990 form was due on November 15, 2021. It has been 26 days since November 15, 2021.
26 x $20 = $520.
There is a limit.
In general, the maximum penalty for any return is the lesser of $10,500 or 5 percent of the organization’s gross receipts for the year. The 5% limit most likely applies but as the most recently available public financial information for The Fund is June 2016 there is no way for the public or donors to know the gross receipts for 2017, 2018, 2019, 2020.
If the $10,500 cap applies, The Fund may owe late-filing penalties of $29,320 based on $10,500 for 2018 and 2019, $7,800 for 2020 and $520 for 2021.
If the 5% limit applies to a guesstimate of $150,000 average annual gross receipts for 2017, 2018, 2019, 2020, The Fund may owe late-filing penalties of $23,020 based on $7,500 for 2018, 2019 and 2020 and $520 for 2021.
If the organization is subject to this penalty, the IRS may specify a date by which the return of correct information must be filed. If the return is not filed by that date, an individual within the organization who fails to comply may be charged a penalty of $10 a day. The maximum penalty on all individuals for failures with respect to a return shall not exceed $5,000.
If the individual penalty applies to all four 990 returns that were not filed, a person or persons within the organization may be on the hook for more penalties which raises several questions such as (a) who would that person be; (b) when the clock started ticking on any IRS specification days; (c) did the Fund have and/or maintain Directors Insurance. It appears the costs to individuals involved with The Fund could be hundreds, thousands or even tens of thousands of dollars in personal penalties plus legal expenses in any federal investigation. This would apply to current and former board members, employees and consultants going back to 2016.
There may be additional penalties.
Tax-exempt organizations must allow for public inspection and copying, during normal business hours, of their 990 forms, Exemption Determination Letters and Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The penalty for failing to make the required forms and letters available for public inspection and copying is $20 on each person for each day that the failure continues, not to exceed $10,000 on all persons with respect to any one return.
It has now been 10 business days since this reporter first sought to inspect NRFund tax records, with the clock still ticking, on “all persons”, on 4 returns, at $20 a day or $800 per person — and climbing every day. That figure will rise just under $2,000 a month for each month The Fund refuses to comply with Talk of the Sound’s request to inspect and copy The Fund’s IRS records covered under the law.
While the NRFund leadership has refused to produce records or answer questions, the leadership of the City School District of New Rochelle has its own responsibilities to be accountable to the public.
Superintendent Jonathon Raymond has so refused to answer questions about the role of the school district he runs in the oversight and operation of the NRFund. Below is a follow-up inquiry we made today:
Mr. Raymond,
I think it is fair to say that the Fund exists based upon your sufferance: it trades on the name of the organization you lead, it operates on property of the organization you lead, it claims to raise money on behalf of the organization you lead and the students in the schools of the organization you lead and you are not only a board member but the highest paid and most prominent public sector in New Rochelle on the Fund board.
Given this, at what point do you feel it is incumbent upon you as Superintendent to make a public statement and/or cut ties by ordering them out of their offices at New Rochelle High School, announcing the District will no longer accept money from the Fund or allow the Fund to operate programs in CSDNR schools or be involved with the MAC and resign from the board and that these actions will remain in place until they make available to the public (including the press) ALL financial records — not just 990s — including but not exclusively bank accounts, budgets, financial statements, meeting minutes, communications with accountants and so on and answer any and all questions about their finances and operations.
Alternatively, at what point, by failing to act and/or speak out do you believe you become complicit in the documented malfeasance and fraud that has occurred and whatever else turns up upon investigation?
Bob Cox
PS, I intend to file complaints with the IRS and DOJ this weekend.
We will update this article with a response, if any.
RELATED:
IRS Revokes Non-Profit Status of The New Rochelle Fund for Educational Excellence
Federal Complaint Filed Against New Rochelle Fund for Educational Excellence
Have the leaders of the NR Fund for Educational Excellence become citizens of “VinnyLand”? The independent nation within the confines of New Rochelle that operates under its own laws.