Over 160 LULAC councils lose tax-exempt status
According to IRS documents released on June 9, over 160 LULAC councils have automatically lost their federal income tax exemption because of failure to file an annual return for three consecutive years.
The vast majority of the LULAC councils lost their 501(c)(4) designation, which is reserved for nonprofits that are organized to promote social welfare. Donations to LULAC councils that carry this designation are not considered charitable contributions and are not deductible for federal income tax purposes.
LULAC National Executive Director, Brent Wilkes, was not surprised to see numerous councils on the IRS list of automatic revocations.
“We have over 900 councils, and the majority of those affected are small, grassroots councils that are more like committees rather than a brick-and-mortar nonprofit organization,” Wilkes said.
According to Wilkes, some of the councils did not respond to repeated requests from national leadership to complete the proper IRS filings.
Many of the smaller councils are raising modest amounts of money and are run by volunteer leaders that may not be well versed on IRS requirements.
“No services will be discontinued, and I doubt it will affect the redistricting lawsuit pending in Texas,” said Wilkes when asked if community services LULAC provides will be affected.
Texas had 43 LULAC councils lose their exemptions, the most of any state.
Jose Jimenez, a former LULAC district director in Houston, agrees with Wilkes and says that the high number of LULAC councils on the list can be attributed to members with good intentions who often lack the business knowledge required to maintain a nonprofit organization.
“What often happens is that when a council dissolves, they don’t file the necessary paperwork with the state or IRS to dissolve the organization on paper,” Jimenez said.
Jimenez pointed out that LULAC councils don’t need permission of district or national leaders to create tax-exempt organizations so it makes it difficult to maintain the numerous tax-exempt filings that individual councils are creating.
The biggest blow to the organization could come from the four LULAC organizations that had their 501(c)(3) status revoked. This is the traditional designation nonprofits carry that allows individual donors, grant foundations and business sponsors to deduct their contributions from federal tax returns.
Nonprofits typically rely on grants from foundations and large donations from private donors for the bulk of their revenue. These entities and individuals usually require nonprofits to carry the 501(c)(3) status.
The four affected LULAC organizations could potentially lose benefits that come with 501(c)(3) tax-exempt status like reduced postage fees, discounts from businesses and sales-tax exemptions in some states.
LULAC Youth Home Inc and LULAC Foundation, both located in Texas, lost their 501(c)(3) status.
According to GuideStar.org, the LULAC Foundation last filed an IRS return in 1998. The foundation was formed to fund educational projects for Latinos. The 1998 filing shows it gave $60,000 to Betti Maldonaldo to develop the film “The Becky Lee Diary” which depicts discrimination to young Latina women in professional positions.
Wilkes plans to get many of the councils re-instated and look further into the organizations that lost their 501(c)(3) status.
Nonprofit organizations that have lost their tax-exempt status may have to file federal income tax returns and pay applicable income taxes.