Thackston's issues expose holes in nonprofit oversight
State law requires charter schools to operate as nonprofit corporations, but the state provides minimal oversight to ensure these entities actually operate without profit.
Facing revocation of its charter, Helen Thackston Charter School is still registered as an active nonprofit corporation in the state, despite losing its federal 501(c)(3) tax-exempt status.
Organizations with 501(c)(3) status are eligible to receive tax-deductible contributions, according to the federal Internal Revenue Service.
To be eligible, an organization cannot be organized or operated for the benefit of private interests.
Status revoked: Thackston's 501(c)(3) status was automatically revoked in 2016 after the school failed to file a Form 990 with the IRS for three consecutive years.
Form 990, required to be submitted annually to the IRS, provides information about organizations including high-level employee salaries, tax-deductible contributions received and investments.
The York City School Board included Thackston's revoked 501(c)(3) status in its June resolution to proceed with revocation hearings, though state charter-school law does not include anything about maintaining that status.
Casey Smith, spokeswoman for the state Department of Education, confirmed that state law does not require charter schools to maintain 501(c)(3) status.
Allison Petersen, the attorney representing the school district in the yet-to-be-scheduled revocation hearings, did not return a voicemail requesting comment.
Brian Leinhauser, solicitor for Thackston, said the school didn't file the forms because it hadn't completed audits for the 2013-14, 2014-15 and 2015-16 school years.
The uncompleted audits — one of the school's most glaring deficiencies — are awaiting finalization by the school board. Once that happens, Leinahuser said, he believes the plan is to submit the 990 forms and attempt to re-attain federal 501(c)(3) status.
The board was scheduled to vote to finalize those audits during its July 27 meeting, but not enough board members showed up. The meeting has been rescheduled for 6 p.m. Wednesday, Aug. 9, at the school.
Leinhauser, who started working on behalf of Thackston in 2016, said he doesn't know why priority wasn't given to getting audits done in a timely manner during previous years.
"Issues like this contributed to changes in the administration," he said.
Since the 2013-14 school year, Thackston has had five different principals and chief executive officers.
Minimal oversight: While the administrative upheaval might have led to the revocation of the school's 501(c)(3) status, there was no impact on Thackston's status as a nonprofit corporation in the state.
Wanda Murren, spokeswoman for the Pennsylvania Department of State, wrote in an email that nonprofit corporations are governed by the provisions of the Nonprofit Corporation Law.
Under this law, the only requirement for reports to the state is an annual report when there has been a change in corporate officers during the preceding calendar year.
Though there has clearly been a change in corporate officers at Thackston during recent years, no such annual report has been filed with the department. So why hasn't the state taken action?
"... (I)f they fail to submit the report, the state takes no action," Murren wrote. "There is nothing under the Nonprofit Corporation Law for the state to ensure that they're continuing to operate as a non-profit."
State Rep. Seth Grove, R-Dover Township, had a simple response upon hearing Murren's statement.
"That's bad," he said.
Grove said the state's oversight of nonprofit corporations clearly needs correcting, and he suggested possibly more communication between the state and federal governments on that front.
Murren wrote that Nonprofit Corporation Law gives the state Attorney General's Office the power to revoke a corporation's nonprofit status.
Joe Grace, spokesman for the Attorney General's Office, said the office has, on occasion, revoked a corporation's nonprofit status, but that's a drastic step.
The lack of state oversight isn't a big secret, either.
Tish Mogan, standards for excellence director for the Pennsylvania Association of Nonprofit Organizations, said very few nonprofits follow the directive to submit annual reports when they change leadership because they know there's no penalty.
Best practices: Mogan said that when it comes to operating a nonprofit in the state, there are a lot of things corporations should be doing, but only a few they must.
Chief among those actions a nonprofit corporation must take is filing articles of dissolution that states its assets will be distributed to other nonprofits if the corporation dissolves, Mogan said.
Thackston's articles of dissolution, filed with the Department of State, specify that the school's assets will be distributed to a local governmental unit upon dissolution of the corporation.
A common best practice, Mogan added, is that board members should not be compensated.
Though it's not illegal, she said she would never donate to a charity that pays its board members because it could incentivize board members to act in the interest of increasing the corporation's year-end surplus, which shouldn't be the purpose of a nonprofit.
Thackston's bylaws state that board members shall not receive compensation for their service, though they may be reimbursed for travel and expenses incurred by them when attending meetings and other duties on behalf of the school.
Leinhauser confirmed board members are not paid, and he said any year-end surplus would be reinvested back into the school.
Tax exemptions: Nonprofits can be eligible for certain sales- and property-tax exemptions in the state.
Jack Owen, attorney for the Pennsylvania Association of Nonprofit Organizations, wrote in an email that nonprofits need 501(c)(3) status to be eligible for these state tax exemptions, but corporations that obtain and then lose that status can make it difficult on the state.
Losing 501(c)(3) status would mean a corporation loses state sales-tax exemptions, but unless that state Department of Revenue knows a corporation lost that status and acts to revoke those exemptions, "nothing would likely happen," Owen wrote.
The state Department of Revenue did not respond to a question about its oversight of nonprofit sales-tax exemptions.
"Real estate tax exemptions are much weirder," Owen added.
Tax status is determined on a county's assessment date, Owen explained, which is typically Jan. 1 of each year.
"If the property is carried as tax exempt on Jan. 1, it remains tax exempt for the entire tax year, even if sold to a for-profit business," he wrote.
An organization that loses 501(c)(3) status would lose real estate-tax exemptions the next year, but only if the county or taxing authority challenges the exemption, which is unlikely to occur, according to Owen.
Thackston does not own any property-tax exemptions, since it rents its property from Texas-based Charter School Solutions, and Leinhauser said he doesn't know if the school uses any sales-tax exemptions.
— This article has been changed to correctly identify Allison Petersen, the attorney representing the York City School District in the upcoming revocation hearings.