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A non-profit organization being run as a subsidiary of the Mobile Housing Board had its tax-exempt status revoked nearly three years ago for failure to file required forms for three consecutive years, according to the Internal Revenue Service.
But its director says the revocation was simply the result of a misunderstanding that will be hopefully be corrected soon by the IRS.
Mobile Development Enterprises, had its tax-exempt status revoked in May 2010 for failure to file a Form 990-series return for three consecutive years, according to the IRS. Dwayne Vaughn, who serves as executive director of both the Mobile Housing Board and MDE, said those running the non-profit company were under the impression they had been given a dispensation from having to file the 990 form and it came as a shock when their exemption was yanked. Vaughn joined the Housing Board in 2010.
"We had talked with the IRS in 2007 and had said that on the initial 2023, which is the form for application for recognition of exemption, that we had requested not to have to file the 990s. IRS told the folks here at the time to send them $100 and the form. They sent them the $100 and the form. The IRS cashed the $100 check, but apparently the form never got processed.”
Vaughn says there is not a record of that conversation or agreement, other than the cashed check. He also declined to provide a copy of the application for reinstatement, saying he isn’t sure if it’s public record yet.
Though MDE lost its exemption May 15, 2010, Vaughn said it was not made known to the company until June 2011. The IRS website does list June 2011 as the public posting date for the revocation. Vaughn says that since August 2011, MDE has been trying to get its tax-exempt status back.
"We have submitted another application, which is what we understand the procedure is,” Vaughn said.
He said he thought it would only be a four-to-eight-month process to get re-approved, but that has now dragged on for a year-and-a-half. He says the IRS is more than a year behind in completing approvals, but the expectation is that when MDE is approved, it will also retroactively do away with any potential problems posed by it operating for all this time without an exemption.
Allison Black Cornelius of Blackfish, a governance consulting firm in Birmingham that deals with many non-profits, said it would be highly unlikely the IRS waited 14 months to notify MDE of the revocation. She said the IRS immediately informs non-profits of a revocation and also begins posting it online within a couple of months as well. She said the IRS spent the years between 2008 and 2010 informing nonprofits old rules regarding 990 filings were gone and revocations would be coming.
"2008 and 2009 were years the IRS did enormous outreach to let people know 990 was changing,” Cornelius said.
The public revelation that MDE has not been a tax-exempt company for nearly three years has left people scratching their heads as to what it means for both the Housing Board and MDE, as the two are so closely related.
According to Mobile County Probate Court records, MDE was incorporated as a non-profit corporation in 2003 by then-Mobile Housing Board Executive Director Stevens Gregory. Housing Board Chairman Clarence Ball and Vice-Chairman Donald Langham also were listed on the MDE board of directors. The Housing Board also incorporated a for-profit version of MDE in 1997 that remains active as well. MDE’s articles of incorporation were updated in 2010 to replace Gregory with Vaughn.
On the Alabama Secretary of State’s website, there are two versions of MDE listed. Mobile Development Enterprises is listed as a non-profit corporation, with Vaughn as the registered agent. Also listed is Mobile Development Enterprises, Inc., a domestic corporation with Vaughn listed as the agent.
Vaughn says MDE is a completely separate entity, despite the fact it is headquartered in Housing Board offices, uses Housing Board phones and equipment and that in addition to Vaughn serving as its director, Housing Board Chairman Clarence Ball and Vice-Chairman Donald Langham serve the same positions for MDE.
Cornelius said one of the requirements in filling out Form 990 would have been to assure the IRS the board is separate and independent and that it has no potential business conflicts.
Even Langham seems confused as to whether MDE and MHB are actually separate entities. When asked last month about MDE, Langham first said he didn’t know what it was and that he wasn’t involved in it. After being told it was run out of the Housing Board, Langham recognized MDE as the MHB’s non-profit entity. But he also said its business is typically handled at Housing Board meetings, adding that there is seldom much of anything on the MDE agenda.
Cornelius said MDE’s loss of its tax-exempt status comes with three potential areas of concern. First, she said, tax-deductible contributions made to MDE would no longer be deductible, which can cause problems for donors. Secondly, if MDE borrowed on tax-exempt qualified bonds, they would not be eligible to use them. And finally, she said, it could also cause problems if they have a 403B retirement plan. At this time it is not certain if any of these apply to MDE.
Vaughn says MDE now employs around 30 people, and unlike those working for the Housing Board, MDE employees are not under the auspices of the Mobile Personnel Board. This means they can be hired without being subject to the merit system.
He also said the company’s annual revenue is somewhere between $1 million and $3 million. The "overwhelming majority” of that comes from its work for the Housing Board, although Vaughn says MDE does earn some money from small grants. Cornelius said the size of MDE’s budget would put it in the top percentages of non-profit organizations and would be another reason the IRS would absolutely require it to file a 990.
Vaughn describes MDE as doing primarily construction management. It was active in working the first phases of the HOPE VI revitalization program that built the Orange Grove and Renaissance developments north of downtown. He said in that case MDE acted as an "owners’ representative,” ensuring that details of the project were suited to the specific needs of the community. As an example, he said the owners’ representative might make sure the property ends up looking different than what was originally envisioned by the developer.
While in other cities housing boards have chosen to use outside developers, architects and planners in the HOPE VI projects, Vaughn said Mobile Housing Board chose to use MDE, keeping those decisions closer. However, he said they are likely to do it differently when the Roger Williams projects begin redevelopment later this year.
MDE also is involved in public relations and outreach programs, he said.
Vaughn downplayed any issues of federal funds going to MDE improperly as a result of the loss of its tax-exempt status, but the situation has clearly gotten the attention of HUD officials. The Department of Housing and Urban Development supplies the Mobile Housing Board with millions annually in federal funding, some of which is being paid to MDE.
"We are analyzing whether the Mobile Housing Board appropriately contracted with MDE utilizing federal funds provided by HUD and, if so, what procurement rules would have applied to their use, and also whether such applicable requirements were followed,” Gloria Shanahan of HUD’s Office of Public Affairs wrote when contacted for this story. She said the process would take "some time,” but that the findings will be public.
As for the status of MDE’s application, IRS spokesman Dan Boone said he could not comment in any way about whether application has been made or where it currently stands. Boone said there was a time when the IRS did not require all 501C3 charities to file a form 990, but the non-profits that were exempted were mostly quite small.
Boone also offered up information about the process of resubmitting an application for tax-exempt status and what it takes to have a reinstatement done retroactively. In MDE’s case, it may be difficult based upon the requirement that they be able to show their "failure was due to its reasonable, good faith reliance on erroneous written information from the IRS, stating that the organization was not required to file a return or notice under section 6033.” Vaughn has said there were no letters from the IRS exempting MDE from filing.
A database provided by the IRS also appears to show MDE has never filed a 990 in its entire existence.
Clarke should expect answer before election
Part of the interest surrounding MDE deals with Alabama House District 97 candidate Adline Clarke’s status under the Hatch Act.
Clarke, who works for MDE as vice president for Business and Community Relations, has faced questions of whether her candidacy is legal under the Hatch Act, a 1939 law aimed at keeping civil servants from running for partisan office. The law has been relaxed recently and the U.S. Office of Special Counsel has said Clarke would only be barred if she receives 100 percent of her salary from federal dollars.
To date, however, Clarke has not received any documentation either clearing her from or binding her to Hatch restrictions. Clarke received more than 40 percent of the vote in the recent primary election and will face Karlos Finley in a runoff April 9.
Ann O’Hanlon of the U.S. Office of Special Counsel said March 4 that Clarke should have a definitive answer before the runoff.
An early version of this story was originally published on Feb. 28, 2013.
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