Revocation of Federal Tax Exemption at Historic African-American Theater Holds Warning for Others
May 12, 2016; Plain Dealer (Cleveland, OH)
In April, leadership of Karamu House, a settlement house that includes the oldest African-American theater in the United States, suddenly became aware that the IRS had revoked its tax-exempt status after a reporter contacted president and CEO Tony Sias, formerly the renowned director of Cleveland’s schools’ arts education efforts, saying that the returns were unavailable online. It turns out the IRS said it had never received returns from 2013, 2014, or 2015 and did an automatic revocation. According to the organization, however, the reports had been completed after clean audits.
Karamu House has appealed the revocation, but loss of tax-exempt status is not the only problem it faces. Major funders of Karamu, including the Cuyahoga Arts and Culture, the George Gund Foundation, and the Cleveland Foundation, have been notified of the interruption of the organization’s tax-exempt status. This issue puts Karamu House in jeopardy of losing upcoming grant payments from Cuyahoga Arts and Culture totaling $103,000, given in support of theater production and organizational restructuring and rebuilding.
This news comes on the heels of Karamu House’s recent staff reduction of 15 employees, including longtime artistic director Terrance Spivey. Spivey was named Artistic Director in 2003 after guest-directing one of the shows. The recent layoffs were part of Karamu House’s current strategic plan, which is focused on making the organization more fiscally responsible. In addition to the reduction in staff, the organization closed its onsite daycare center, the Preschool of the Arts. The daycare center was one of the four programmatic pillars of the organization, which also included community arts education, an active theater, and an afterschool program. Karamu House is conducting a feasibility study to determine what should be done with the building that housed the daycare center.
The elimination of the daycare program will allow the theater to focus more on its active theater program, which is a large part of the organization’s history. One of the key offerings of the theater in the past was its role as an incubator of up and coming African-American playwrights, including Cleveland native Langston Hughes. Current Karamu House leadership took the cuts to the daycare and afterschool programs seriously, but viewed it as a necessary decision for the organization to get back to its roots and keep operating for another hundred years.
However, Karamu House troubles seem to go back even further. In 2011, it was reported that ongoing issues between the executive director and the artistic director at the time overshadowed the critical acclaim its theater productions were receiving in the Northeast Ohio community and beyond. These issues extended into tension in the boardroom, with approximately half of the board members rolling off of the board that year either by choice or force. It was noted then, in a Cleveland Scene article, that the daycare and education programs were getting more attention than the true purpose behind Karamu House’s existence: its theater.
And it’s the theater that’s most in jeopardy with the recent issue of the missing IRS documents. Karamu House’s application to have its recognition as a 501(c)(3) public charity reinstated was sent out on May 7th and received by the IRS on May 9th. Sias and current board president David M. Reynolds must now wait for a response. The Service moved quickly on the revocation, which was likely automatic; will it move as quickly on the appeal?—Kelley Malcolm
Resource for Fiscal Compliance
You will find this book to be invaluable when setting up and maintaining your systems for non-profit finance, compliance and reporting and organizational status reports to your Board of Directors and other interested parties. In addition to performing deliverables, as specified in your program plan, timely and effectively, you should not have to worry about discontinued funding due to non-compliance.
