October 25, 2012

MHA seeks to restore exemption

United Way holding funding until association regains 501(c)3 status.

by Sarah Einselen

LOGANSPORT — Logansport’s Mental Health Association probably won’t be getting United Way funds for the rest of this year after it lost its tax-exempt status in February.

However, United Way funds earmarked for the association are being held in reserve until the association’s status as a 501(c)3 charitable organization is restored.

The local Mental Health Association until recently had maintained its tax-exempt status through the state Mental Health Association, but leaders found out early this year that arrangement no longer worked.

“Somehow, we are not sure how, whether it was an error with the IRS or something that wasn’t done with the state association, we lost our 501(c)3,” said Karen Waldron, executive director of the Mental Health Association in Logansport. “We always turned in our 990s” to the state association to be filed with the IRS, she said.

The association had its tax-exempt status revoked as of May 15, 2011, for failure to file a Form 990-series return or notice for three consecutive years. That form is used by charitable organizations to report financial information to the Internal Revenue Service.

A notice of automatic revocation was posted to the IRS website on Feb. 22, according to an online IRS database of charitable organizations. As of Friday, the revocation was still in place.

Joyce Mayhill, executive director for United Way of Cass County, said the her organization’s board had been working closely with the Mental Health Association to get the association’s tax-exempt status reinstated.

“They’ve been making applications trying to get this resolved, and in the meantime, the funds that have been allocated to them have been put in a reserve for them,” Mayhill said.

The United Way bylaws prohibit contributions to non-501(c)3 organizations, so United Way can’t legally turn over funds to the Mental Health Association while it’s not tax-exempt. The United Way board plans to restore funding, though, once the IRS reinstates the association’s tax-exempt status. That could be several months from now, Mayhill said.

The association received the first two months’ worth of funds this year, before United Way was notified the association was no longer tax-exempt. After that, funds were placed in reserve.

There’s roughly $40,000 waiting to go to the association, Mayhill estimated, an amount that’s growing each month.

United Way continues to campaign on the association’s behalf.

Regulatory changes in the IRS tax code for charitable organizations may have led to the revocation, Waldron said.

The association has filed for its own 501(c)3 status and is still waiting for information from the state association to see whether it can continue to operate using the state’s designation.

Waldron said the buck stopped with her.

“I still don’t know who dropped the ball, but ultimately I should have known,” she said, that the documents hadn’t made it to the IRS. “I don’t want to bad-mouth anybody. I’ll take the blame for my part.”

The issue with the state association has affected three county associations besides Cass’s, Waldron said.

So far, the local association has been using up reserve funds originally intended for large projects, but that’s running out. At this point, she’s unsure what to do about 2013 allocations.

“I just know that we need the money,” she said.

“We’re just trying to comply and get on good terms and keep the Mental Health Association going because we truly believe that we do a very needed service for people with mental illness,” Waldron said. “We’re just waiting. We’re trying to be patient.”

 Sarah Einselen is news editor for the Pharos-Tribune. She can be reached at or 574-732-5151.