I first reported back in March on some questions that had come up regarding the non-profit organization run by Republican gubernatorial candidate Curtis Coleman as a follow-up to a story on “7 on Your Side.”

In April, I reported that the IRS had revoked the tax-exempt status for the Institute.  I have asked Curtis Coleman, his Institute, and his campaign for an explanation, but they have declined to comment other than the initial response provided for my original post in March.

Today, John Lessel, attorney for the Institute, appeared on the Dave Elswick Show on KARN – a program where Coleman is a frequent guest and the host is a supporter – to answer some of these questions.  Let’s consider his response…

“We have had an issue – and it has been somewhat publicized – regarding a revocation of our tax exempt status.  Basically, we had an administrative screw-up on our part.  The paperwork did not get filed properly.  So they published a revocation of our tax-exempt status effective February 15,” said Lessel.

The administrative screw-up Lessel is referring to is the Institute’s failure to file their required annual tax return for three consecutive years. For a non-profit, this is filed on Form 990.  The third consecutive required annual tax return was due on February 15, which is the date that the organization’s tax exempt status was automatically revoked under IRC Section 6603(j).  Again, this happens automatically when a non-profit fails to file the required return not for just one or two years, but for three years in a row.  Lessel attempted to explain that this is not an issue.

“But the information we are getting from the IRS is that our determination letter will be effective February 15 – the same day (as the revocation).  But at this point, the application is undergoing a second level of review.  The primary reviewer has passed it along and she has told me that it is with a favorable recommendation and the revocation was a prerequisite to the issuance of the determination letter and that happened on April 22.  So we are a couple, three weeks into that process so hopefully we will get our determination letter pretty quickly.”

This explanation seems somewhat inconsistent with the guidance from the IRS website on how an organization gets its tax exemption status re-instated after it has been revoked.  The IRS explains that an organization must re-apply for tax exempt status as part of a new application (Form 1023).  In addition, the IRS warns that there is “no expedited review process for an automatically revoked organization requesting reinstatement.”

Back to Lessel, Elswick asked him if the donors who gave money to the Institute “with the understanding that they could write this off on their taxes and stuff – is that going to carry through for them?”

“Yes, if you think about what happened the revocation of the tax exempt status presumes that you have a tax exempt status and it is effective on a certain date, so up to that date we were tax exempt. The filing of the Form 1023, which grants you your determination letter isn’t even required for some types of organizations – for example churches don’t have to file that 1023 and they are still tax exempt. The tax exemption is set out in the statute of the Internal Revenue Code. The determination letter is just the way the IRS gives its stamp of approval to prove that you are an organization both in its organizational documents and in its operations that you fall within the parameters of a 501(c)3.”

This is an interesting answer with a bit of misdirection.  Yes, churches don’t have to obtain a determination letter, but that has nothing to do with the Institute, which does have to obtain this determination.  It is an important document and not just a stamp of approval.  The fact that some organizations are exempt from this requirement is irrelevant to the fact that the Institute is required to obtain this letter and has not yet done so.

Elswick asks Lessel, “So the bottom line is you all had all the powers of a 501(c)3; all that had not happened was that the IRS had stamped your paperwork so to speak.”

“That is correct. And because we have been advised that our determination letter will be effective as of February 15 then there is really no gap.” (Here Lessel agrees with Elswick that it is “seamless” between the time period before and after revocation.)

Again – in my humble opinion – this appears to conflict with the guidance from the IRS.  The IRS states that an organization whose tax exempt status is reinstated is usually the date of the new application, but it can request that the date be effective as of the revocation date if it is able to demonstrate “reasonable cause” under IRS Notice 2011-44. I have asked Lessel what this “reasonable cause” is that they are claiming.

However, as I explained above according to IRS guidance, this reinstatement request is treated as a new application. As the Institute never received tax exempt status prior to the automatic revocation, I do not see any guidance from the IRS that donations made prior to the effective date of the revocation are tax deductible.  I have asked Lessel what IRS guidance he is relying on in making this claim, but I would recommend anyone who made donations prior to the revocation date – February 15, 2013 – to consult his or her own tax adviser on this point.

Elswick also asked Lessel if he felt that they had been targeted by the IRS due to the conservative nature of their activities. In case you missed it, the IRS admitted that they have targeted non-profit 501(c)4 organizations that have conservative leanings.  Lessel seemed to say that this is not the case saying “the response we received for our initial application was relatively modest.”

You can listen to the interview with Lessel below and I will update this post if I hear back from Lessel or Curtis Coleman.

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Jason Tolbert is the moderator for his opinion blog, The Tolbert Report. He can be reached by e-mail at Jason@TolbertReport.com. Follow him on Twitter: @TolbertReport.

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