A nonprofit foundation headed by state Sen. Sam Slom had its tax-exempt status revoked last year by the Internal Revenue Service for failing to file its federal tax return for three years.
Slom, the sole Republican in the state Senate and a staunch opponent of new taxes, is president of the Small Business Hawaii Entrepreneurial Education Foundation. He did not return phone calls to his office and cellphone seeking comment.
The foundation actually owed no taxes because it was a charitable entity, exempt from paying taxes as a 501(c)(3) organization recognized by the IRS. But it was required to file annual federal tax forms, which are open to public inspection to help ensure charities use their beneficial tax status appropriately.
Although the foundation hasn’t filed a tax return since reporting $287,000 in revenues on its 2010 Form 990, it has continued to conduct business. Slom kept its registration up to date at the state Department of Commerce and Consumer Affairs, filing annual reports as recently as July, and holding events such as the annual SBH Business All Stars Awards Banquet in September 2013.
The foundation was a plaintiff along with HonoluluTraffic.com and others in a lawsuit against the government over the Honolulu rail system in 2011 and actively solicited donations for that cause. That prompted a written complaint to the IRS by Hannah Miyamoto, who alleged that the foundation was abusing its favorable tax status by soliciting tax-deductible donations but using the money to benefit individuals, a non-exempt organization and a political campaign.
"The tax-deductible status is a privilege granted by Congress to encourage activities which are considered publicly beneficial, but you have to do what’s required to qualify for those benefits," Miyamoto, a Honolulu attorney, said when informed about the revocation.
"Organizations that get decertified because they haven’t filed 990 forms usually simply are not active and everyone dropped out," she said. "This is different. It’s inexplicable. As a prominent legislator, he should know better."
In its last federal tax filing, for the 2010 calendar year, the SBH Entrepreneurial Education Foundation listed $287,853 in contributions and grants, and $225,928 in expenses. Its biggest payment was $101,100 to the online site Hawaii Reporter.
Malia Zimmerman was a founder, editor and owner of Hawaii Reporter as well as a director and secretary of the SBH foundation.
The foundation spent $60,000 on business forums that year. It described its mission as to "provide entrepreneurial information, training and education through publications, radio and television, public meetings, conferences, seminars and an interactive website in Hawaii."
With the revocation, the foundation is no longer eligible to receive tax-deductible contributions and may have to pay taxes on any income it receives.
Bob Sigall, vice president and director of the SBH Foundation, told the Honolulu Star-Advertiser he was unaware that the organization had not filed tax returns because Slom handled its finances, and he referred questions to the legislator.
"The organization has been out of business for about a year or so," Sigall said. "My take on it is we didn’t have a purpose, so we didn’t need to maintain our tax-exempt status if we were just shutting the organization down."
Groups that bring in more than $50,000 a year must file a Form 990, describing their accomplishments, fundraising, expenses, directors, staff and compensation, as well as payments to independent contractors.
Nonprofits with less income are required to file a simple e-Postcard with eight pieces of information, including reporting if they want to shut down.
Neither was done. A notice on the IRS website regarding the foundation, posted in August, announced, "The federal tax exemption of this organization was automatically revoked for its failure to file a Form 990-series return or notice for three consecutive years."
It is unclear how much money the nonprofit collected in that time. In June 2012, Slom informed the state attorney general’s office that the foundation had received more than $25,000 in 2011 and expected to do so again in 2012. He projected its income would fall below $25,000 in 2013 and received a conditional exemption from registering under the state’s Charitable Solicitation law on June 26, 2012, that expired Dec. 31, 2013. He failed to reapply.
Founded in 2007, SBH Foundation suffered a membership decline and turned to mainland donors for a few years, according to Sigall, but those contributions dried up, too.
"The organizations that had given money in the past redirected their money into more political activities," Sigall said. "Malia was the one that did most of our fundraising."
Although the SBH Foundation had no paid staff, Slom received a salary from another nonprofit group he also headed, Smart Business Hawaii, a business membership association that operated from the same address in Hawaii Kai as the foundation. According to financial disclosure forms he filed as a state legislator, Slom received between $10,000 and $25,000 in 2013 as executive director of Smart Business, down from previous years when he made between $25,000 and $50,000 in that position.
Smart Business Hawaii voted by email to disband last month, said Sigall, who also served as a board member and vice president of that nonprofit, founded in 1975. (Sigall writes a weekly history column on a freelance basis for the Star-Advertiser.)
Smart Business had been in decline, he said, since its secretary left Hawaii about a year ago.
"I believe that by us closing the two organizations," Sigall said, "it opens room in the future for someone else to come along to start a new smart business organization with new vitality and new leadership, and younger faces and less gray hair."
