Tax-Free

The Memphis Flyer’s Third Annual Nonprofit Survey.

by Mark Jordan

with additional reporting by Amy Berlin, Phil Campbell, Lydialyle Gibson, Jim Hanas, Jacqueline Marino, Lauren Mutter, and Sunni Thompson

magine a complete stranger coming to the door of your home or your place of business and asking to see your IRS tax returns. You would probably tell him to get lost and maybe even slam the door in his face, right?

Now, as you are no doubt preparing your tax return to meet the April 15th filing deadline, wondering where you’re going to get the money to pay the tax bill, imagine that your neighbor is saying that he doesn’t have to pay taxes because what he does for a living is vital to the community’s greater good. Well, now you’re singing a different a tune; you’re demanding proof that your neighbor’s job is as altruistic as he claims.

This is the contradictory attitude the Flyer has often encountered in the three years since it began its annual survey of nonprofit, tax-exempt organizations. As we have investigated these groups – knocking on doors and asking to see public but still sensitive documents – we have had more than a few doors slammed in our faces. And this is, of course, understandable since we’re all but asking to look into their wallets.

The Memphis Brooks Museum of Art had a total revenue of $2,693,325 in its last reported fiscal year. E.A. Carmean, its director for that period, was paid $96,000.

But what those groups who criticize our survey fail to realize is that they are the neighbor next door.

There are currently about 1.2 million organizations, not including churches, classified as tax-exempt by the IRS. The majority qualify under Section 501 of the Internal Revenue Code. Their number is growing. Every year the IRS has to sift through 50,000 new applications for tax-exempt status. The kinds of organizations that earn tax exemption are numerous – and varied as well; groups that have nonprofit status include charities and hospitals, as could be expected, but also count theatres, private schools, fraternal orders, labor unions, sports leagues, and professional associations among their number.

One thing most of them do have in common, however, is IRS Form 990.

When Congress included the tax exemption for nonprofit groups in the very first income-tax act in 1913, the idea was to encourage the private sector to promote the public good in efforts that might otherwise have to be assumed by government. But while taxpayers may not pay for the services directly, the tax-exempt status of the nonprofits effectively means that taxpayers are underwriting their activities.

With that in mind, however, Congress and the IRS have also created a system of accountability for nonprofits. The best-known part of this system – and the primary tool in the Flyer’s survey– is IRS Form 990, a financial statement, not unlike a personal tax return, that all nonprofits are required to file every year in order to retain their tax-exempt status.

Investigating Nonprofits:

Why We Do It.

Despite the moniker, nonprofits are hardly that. Collectively, it has been estimated that “nonprofits” in the United States take in more than a trillion dollars in revenue every year and control more than $1.5 trillion in assets – all of it tax-free.

Part of the lucrativeness of the nonprofit world can undoubtedly be traced to its lack of tax burden. In addition, the “do-gooder” image projected onto most groups carrying the nonprofit label by the general public instills a high level of trust that frequently reaches back into people’s pockets. In short, if you’re a nonprofit, people will not only trust you with their money, they’ll want to give you their money.

Unfortunately, as in anything, there are unsavory people who are more than willing to take advantage of the special tax-exempt status and the aura of trustworthiness that surrounds groups that have it.

A 1986 investigative report by Gary Marx and John Work that appeared in Washington Monthly, for instance, reported widespread abuse and misappropriation in the nonprofit world. In 1984, the Shriner fraternity’s network of charity circuses, the article reported, took in approximately $17.5 million but only $182,000 of that money went to the hospitals that were supposed to receive it; in at least one case the balance was instead spent on “administrative” costs such as members’ travel and entertainment and upkeep of the fraternity’s bar and restaurant. The same story detailed the misdeeds of the Rainbow Foundation, a group that purported to raise money to buy dying children their last wish but whose funds were actually used by the organization’s administrator to pay for personal trips to the Caribbean and Europe.

More recently, in 1990 the national president of the United Way resigned and was later jailed for converting thousands of dollars of the organization’s funds to his personal use. And last winter, Newt Gingrich became the only Speaker of the House to be reprimanded by that body for providing misleading information in an investigation into his misuse of nonprofit groups to further his political goals; nonprofits are strictly forbidden from engaging in political activity.

Of course, such cases are not the norm; in the three years we’ve conducted our survey we’ve yet to uncover any outright malfeasance. In the past we have pointed out the inequity between male and female salaries in the nonprofit world. We pointed out that James Daughdrill, president of Rhodes College, was the highest-paid university president in the U.S. during 1994. We also raised questions about the $270,000 salary paid to Orpheum president Pat Halloran.

And we intend to keep looking. Without obvious red flags, IRS reviews of organizations’ nonprofit status are rare occurrences and complete audits rarer still. So by making nonprofits’ 990s public record, the IRS has effectively placed a large portion of the burden of policing these groups on the private sector.

Investigating Nonprofits:

How We Did It.

We began our survey this year with a list of 45 501(c)(3)-classified organizations that were picked to represent the variety of purpose in the nonprofit world (i.e., health care, education, cultural enrichment). Of these initial 45 groups, three dropped from our list because they were either too small to file a 990 (any nonprofit taking in less than $25,000 a year in total revenue is not required to) or because their particular status permitted them to not file.

Organizations were asked to provide their most recent Form 990. However, because of the IRS’ five-month filing period and the differing dates of fiscal years, some organizations did not have their 1997 form prepared and provided a 1996 or 1995 form instead.

The table on the following pages is a broad sketch of our findings. It includes the organization’s annual revenue and the names and salaries of the two highest-paid employees. Since the 990 does not require the reporting of salaries less than $50,000, the salaries of top employees at some organizations are not reported. A few groups, however, provided the information anyway. The figures listed reflect only salaries and not benefit-plan contributions, or deferred compensation.

Furthermore, in an example of why this exercise is as much a learning experience for us as our readers, some organizations switched categories as we discovered their purpose was not what we originally thought it was. The Urban League, for instance, which we initially saw as a charity/fund-raising group, soon revealed itself to be much more of an educational group upon close inspection of its 990. It was cases such as that one which prompted us for the first time to include synopses of the organization’s mission statement, so that readers could learn a little about what each group does, not just the numbers involved in doing it.

Available Upon Request:

How They Did.

There were no real surprises in any of the figures in the 990s this year. Instead, the main story seems to be how these organizations deal with a request for public information.

According to IRS regulations, all nonprofits (except private foundations) are required to keep on file in their main business office copies of their last three Form 990s. The forms are clearly marked “open to public inspection” and are supposed to be so during normal business hours without an appointment. A new IRS regulation also requires copies of the form, chargeable to the requester at a reasonable fee, to be made upon request.

In our two previous surveys, reporters always made a courtesy phone call to the organization in question to make an appointment to make a copy of the 990. This year we decided to test the letter of the IRS’ regulations regarding public inspection of 990s. Reporters dropped in on the targeted organization unannounced and attempted to get a copy of the 990 then and there. Of the 42 groups that made our final survey list, 16 – the Memphis Brooks Museum of Art, Habitat for Humanity, Hands on Memphis, Big Brother/Big Sisters, the Kidney Foundation, Africa in April, Memphis in May, The Orpheum, Germantown Community Theatre, Circuit Playhouse, the Animal Protection Association, the Memphis Humane Society, the Wetlands America Trust, the Community Foundation, Students, Mothers, and Concerned Citizens, and Goals for Memphis – provided the form on our initial visit with little or no haggling.

In most cases, those groups that did not provide the form upon initial request failed to do so more from ignorance than any attempt to subvert IRS regulations. Often the first person the reporter encountered didn’t know what he or she was talking about. It usually took several phone calls and a few days to track someone down who did, and even then, that person felt the need to check with a controlling authority, usually a lawyer, accountant, or executive director.

Perhaps the most interesting instance of this was when our reporter went to get the 990 for the Cynthia Milk Fund, a charity group administered by the Memphis Publishing Company, publisher of The Commercial Appeal, a longtime local proponent of ready access to public records. After an initial fruitless visit, our reporter received a call from the milk fund’s bookkeeper explaining that he would have to get permission from Memphis Publishing Company president and CA editor Angus McEachran before he could release the 990. Once McEachran’s office was contacted, however, the information was promptly forwarded.

But in the case of a few organizations, it was a little more difficult to wrestle away the public document. When initially approached, officials with Les Passees provided the Flyer with two tax forms dating back to 1957 and 1978. After several more days of trying to get their 990, it was surrendered only after a written, formal request was faxed, something which is not a requirement.

And at the Epilepsy Foundation of West Tennessee, our reporter actually had to endure abusive and intimidating behavior from a staff member upon her first visit.

At press time, only one targeted group had failed to provide us with a copy of their 990, the Southern College of Optometry. The school’s financial director, we’ve been told, had a family emergency just prior to our visit. n


The following table lists the findings of this year’s nonprofit survey. Each entry includes the organization’s name, a summary of its mission statement, its total annual revenue, the names and salaries of the two highest-paid officials, and the date of the close of its fiscal year.

Salaries of officials making less than $50,000 do not have to be reported on 990s. In cases where top officials made less than $50,000 or were not compensated at all, the name of the top official is given when provided. In some cases – Memphis in May, The Dixon Gallery and Gardens, Memphis Brooks Museum of Art, Hands on Memphis, and the Volunteer Center, in particular – the top official listed is no longer with the organization.

Charities and Fund-raisers

n Aid to End AIDS Committee. (Friends for Life AIDS Resource Center). Provides AIDS education and prevention info, economic assistance to HIV-positive clients and their families, and housing and basic living assistance to persons with AIDS. $523,623. Marshall Koonce, president: no compensation. 6/30/97.

n Community Foundation of Greater Memphis. Gives grants to qualified organizations that will use the funds provided for charitable purposes. $30,570,118. Gid Smith, president: $90,300; Mack E. McCaul Jr., vice president-finance; Janis Foster, vice president-programs; and Elizabeth Dixon, vice president-development: $53,100 each. 4/30/97.

n The Cynthia Milk Fund. (Administered by The Commercial Appeal). Provides milk/nutritional supplements to indigents; 341 individuals were provided supplements in FY 1996. $38,939. Angus McEachran, president: no compensation. 12/31/97.

n Germantown Charity Horse Show. Raises money for various charitable organizations; educates the public on various breeds of horses. $377,353. Mary Ann Pigford, president: no compensation. 8/31/97.

Cultural

PHOTO BY DANIEL BALL

The Orpheum’s Pat Halloran: $277,262

n Africa in April Cultural Festival. Promotes cultural awareness through an annual festival, sponsors anti-drug and-crime programs; funds eight college scholarships. $227,194. Dina Young, secretary: $15,000; David Acey, executive director: $8,000. 12/31/96.

n Circuit Playhouse. Provides the community with a “professional, permanent theatre.” $1,041,978. No officer or employee earned $50,000 or more in compensation; names of top officials not provided. 7/31/97.

n Memphis Development Foundation (The Orpheum Theatre). “Projects for the improvement of the Memphis metropolitan area.” $4,990,131. Pat Halloran, president: $277,262; Donna Darwin, general manager: $68,327. 12/31/96.

n Memphis In May International Festival. Provides educational, recreational, and cultural enrichment opportunities through various programs, including the International Weekend Festival, the Beale Street Music Festival, the World Championship Barbecue Cooking Contest, and the Sunset Symphony. $4,120,232. Cynthia Ham, executive director: $85,000; Brenda Kennedy, director of finance and administration: $67,500. 8/31/96.

n Germantown Community Theatre. Produces plays and musicals to enhance the cultural lives of the residents of Germantown, Tennessee, and the surrounding communities. $123,657. No officers or employees earned $50,000 or more in compensation; names of top officials not provided. 6/30/97.

Museums

n Dixon Gallery and Gardens. Operates and maintains an art gallery for the exhibition and display of paintings and other art and gardens for the benefit, education, and enjoyment of the public. $10,651,660. Joseph Czestochowski, director: $124,437; Katherine Lawrence, assistant director: $45,076. 12/31/96.

n Fire Museum of Memphis. Provides an entertaining and educational attraction to promote fire safety and reduce fire fatalities, injuries, and property damage. $1,277,360. No officer or employee earned $50,000 or more in compensation; names of top officials not provided. 6/30/97.

n Friends of the Memphis and Shelby County Public Libraries. Provides direct financial support to public libraries and to increase public awareness of the importance of the libraries to the community. $216,595. Lester Gingold, president; no officials were compensated. 6/30/96

n Memphis Brooks Museum of Art. Supervises and finances exhibitions shown at the museum. $2,693,325. E.A. Carmean Jr., director: $96,000; Patricia Lawrence, curator of education: $50,000. 6/30/96.

Education

PHOTO BY JOHN LANDRIGAN

The Gandhi Institute’s Arun Gandhi: $0

n American Contract Bridge League Educational Foundation. Aims to educate people about bridge and contract bridge, instruct them on how to play, and increase the number of bridge players. $193,471. Harriette Buckman: no compensation. 12/31/96.

n Briarcrest Christian School Systems. To make available to students the opportunity to excel scholastically within a Christian environment. $7,819,892. Timothy Hillen, president: $90,000; Sterling Williams, operating officer: $56,883. 6/30/97.

n Harding Academy of Memphis. To “teach young people to believe in God; believe in themselves; to think, reason, plan, and act to enrich and give purpose to their lives and to all God’s creation; to forever desire and seek truth and to know where and how to find it.” $8,287,016. Harold Bowie, president and CEO: $97,606; Jerry Escue, vice president: $55,353. 6/30/97.

n M.K. Gandhi Institute for Non-Violence. Promotes non-violence in conflict resolutions, using workshops, lectures, etc. $90,816. Kay MacKenzie, executive director: $35,078; Arun Gandhi, president: no compensation. 12/31/96

n Memphis Urban League. Provides low-income people with a variety of educational, job training, and employment locating services. $656,135. Herman C. Ewing, president/CEO: $74,153; no other officials earned $50,000 or more in compensation. 12/31/96.

n William R. Moore School of Technology. Vocational School. $686,953. Gaylon S. Hall, school director: $51,818; National Bank of Commerce, trustee: $47,919. 8/31/96.

Environmental/Agricultural/Animal

Africa in April’s David Acey: $8,000

n Animal Protection Association. Educates pet owners on pet responsibility; provides referrals to local veterinarians; investigates cases of animal abuse. $21,711. Lynn Resneck, president: no compensation. 12/31/96.

n The Cotton Foundation. Encourages and aids education, scientific experimentation, and research relating to cotton. $1,825,249. Dr. Andrew Jordan, executive director and secretary: $39,913; no other officer or employee received compensation. 6/30/96.

n Memphis Humane Society. Provides short-term care of injured, abused, abandoned, or stray animals, including medical treatment, assistance with adoption, and spaying/neutering. $559,848. Gail Phillips, president: no compensation. 12/31/96.

n Wetlands America Trust. “… expands Ducks Unlimited’s mission to provide leadership in the protection of the natural balance of wetlands ecosystems ensuring the future viability of waterfowl and other wetland wildlife in the United States. The Trust operates exclusively for the benefit of DU and complements DU’s domestic habitat programs in harmony with DU’s conservation priorities. The Trust is also a fiduciary for DU and manages endowments and revolving finds. DU is the sole member of the Trust.” $8,377,618. Matthew B. Connolly, Jr., COO: no compensation. 2/28/97. (Connolly does receive $263,350 in annual compensation from Ducks Unlimited, Wetlands Trust’s affiliated organization and also a nonprofit.)

n Wolf River Conservancy. Conserves the Wolf River environment by purchasing recreational and conservation land in the Wolf River headwaters area. $689,872. N. P. McWherter, president: no compensation. 12/31/96.

Health Care

n Church Health Center. Provides various health services for working poor and homeless. $3,812,869. Scott Morris, executive director: $86,585; Mary Nell Ford, physician: $78,043. 6/30/97.

n Epilepsy Foundation. Provides education about epilepsy as well as training and counseling for special employment. $167,500. Carolyne Pegram, executive director: $32,000; no other officer or employee earned $50,000 or more in compensation. 6/30/97.

n National Kidney Foundation of W. Tennessee. Provides support for research in fighting kidney disease. $162,743. Names and salaries of top officials were not provided. 6/30/97.

n Shelby County Health Care Foundation (A division of The Med). Provides medical services to the residents of Shelby County. $201,128, 863. Burton Waller, president/CEO: $173,250; Stuart Polly, senior vice president-outpatient operations $162, 967. 6/30/97.

n U.T. Medical Group. Provides health services in an efficient manner within an academic setting; services include preventative medicine, psychiatry, ophthalmology, pathology, ob/gyn, otolaryngology, and cancer clinic services. $115,589,896. William Hickerson, physician: $335,000; Donald Watson, physician: $290,000. 6/30/96.

Human Services

n Alcoholics Anonymous –Memphis Area Inter-Group Association. Helps people recovering from alcoholism. $42,321. Indie Cockerham, secretary: $24,169; no other officer or employee earned $50,000 or more in compensation. 12/31/96.

n Goals For Memphis Association. Increases economic potential of citizens through courses and symposiums that educate businesses on the costs of racial inequality and individuals on how to be effective leaders in their businesses. $1,299,619. Linda Bailey, executive director: $88,875; Sheryl Lipman, program director: $52,500. 12/31/96.

n Habitat for Humanity of Greater Memphis. Constructs homes for low-income families. $1,198,347. Bryan LeBlanc, vice president; no officials were compensated. 6/30/97.

n Hands on Memphis. Creates, manages and leads “hands on” volunteer projects that “positively impact the lives of people in the Memphis area;” has a volunteer base of over 1,000; is involved in more than 35 monthly projects. $165,511. Anna McQuiston, executive director: $12,500; Phillip McCaull, executive director: $18,083. 1/31/97. (McQuiston succeeded McCaul in the middle of the fiscal year. These salaries reflect what each was compensated for their partial tenures.)

n Memphis Area Neighborhood Watch. Promotes crime awareness and prevention. $387,102. Frances Wilson, executive director: $15,359; Vida Anderson, executive director: $12,738. 6/30/97.

n Memphis Union Mission. Feeds, clothes, shelters, and offers religious services to transient, homeless men; the Mission has 89 beds. $1,243,049. Clay Hudleston, business administrator: $58,757; no other officer or employee was compensated. 1/31/97.

n St. Peter Villa. Provides health care for the poor and elderly. $6,692,653. Terry Durham, administrator: $64,276; Evelyn Wilson, licensed nurse: $52,265. 10/30/96.

n Students, Mothers, and Concerned Citizens. Provides emergency housing for homeless families and transitional housing and rental for low-income families; GED classes; commodity distribution; referral network and advocacy for low-income people; affordable housing program. $247,640. Mary Taylor-Shelby, executive director: $25,166; Phyllis Rodgers, senior peer counselor: $12, 905. 12/31/96.

n Volunteer Center of Memphis. Promotes and coordinates the training and use of volunteers from the community for the benefit of the community and its schools. $283,630. Kaye Brooksbank, executive director: $46,485; no other officials listed.12/31/96.

Youth

Big Brothers/Big Sisters’ Adrienne Bailey: $37,144

n Big Brothers/Big Sisters of Greater Memphis. Companionship of adults and children. Adults volunteer and serve outside children’s homes, providing companionship and moral, mental, and physical guidance to children. $421,093. Adrienne Bailey, executive director: $37,144; Barry Yoakum, president: no compensation. 12/31/96.

n Boys’ and Girls’ Clubs of Memphis. Provides boys and girls with professional and informal guidance through a program of clubs, athletics, science, shops, learning centers, crafts, computer labs, playgrounds, gyms, and special events. $1,956,237. Bradley L. Baumgardner, president: $80,000; Bernal E. Smith, vice president: $52,604. 12/31/96.

n Free the Children. Provides programs to help low-income families and individuals to permanently free themselves from poverty. $298,791. Sara L. Lewis, executive director: $84,097; no other officials earn $50,000 or more in compensation. 6/30/96.

n Les PassEes. Supports Les Passees Children’s Center, which treats children with neuromotor dysfunctions and provides information and support to school-age kids about health and social concerns. $459,135. No officer or employee earned $50,000 or more in compensation; names of top officials not provided.12/31/96. n


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