Law Center shuttered after parent org loses tax-exempt status

Freedom Center for Social Justice cites funding shortfall, says they are seeking reinstatement from IRS

CHARLOTTE, N.C. — A landmark legal program assisting low-income and under-served LGBT populations has been shuttered, following the Internal Revenue Service’s revocation of its parent organization’s tax-exempt status. Leaders of the group say the closure was prompted by funding shortfalls and they are in the process now of seeking reinstatement from the IRS.

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Bishop Tonyia Rawls

The LGBTQ Law Center was one of the primary programs of Charlotte’s Freedom Center for Social Justice, a non-profit organization founded in 2010 by Bishop Tonyia Rawls, who has worked as the Freedom Center’s executive director.

But, this month, attorneys with the law center were laid off and told the program was ending.

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The decision comes after the IRS revoked the Freedom Center’s tax-exempt status on May 15, 2014, according to records from the IRS. The revocation was publicly posted by the IRS on Aug. 11, 2014.

As a non-profit organization, the Freedom Center was required to file an annual tax filing, known as a Form 990. The filing discloses an organization’s revenue and expenses. Under a federal law passed in 2006, the IRS automatically revokes an organization’s tax-exempt status if it fails to file the appropriate Form 990 in three consecutive years.

Freedom Center board members and Rawls said the organization itself is not closing, in response to questions sent to them by qnotes last week. The group has also released a 2013 Form 990 and says they’ve begun the process of reinstatement.

The group’s leaders also say the law center’s closing was prompted less by the IRS revocation and more by funding shortfalls. The Freedom Center failed to receive three grants for which it had applied for this year. To fill the gap, the group raised $17,000 in non-grant funds, but said that wasn’t enough to cover law center expenses of more than $10,000 each month.

“We had a budget shortfall and took time to look at where we could make the most sustained impact with limited resources,” the group said in a statement. “That combination of circumstances led to the decision to close the direct services segment of the LGBTQ Law Center. The program costs in excess of $120,000/year, and while the work of our brilliant attorneys Kelly Durden and Sarah Demarest was incredible, our desire to carry a program like this was not sustainable, particularly since more than 85% of our services were offered free of charge.”

As the organization rebuilds, it says it’s entering into a new five-year strategic planning process and taking steps to cut costs. Rawls has already deferred her salary for three pay periods this year and has said she will continue to do so until more funds are raised. The group’s office administrator and CPA have also deferred their payments.

Other programs and activities will continue, and the group said it has confidence in Rawls as its leader.

“We have great confidence in our Executive Director Bishop Tonyia Rawls. She has helped navigate this organization through its most difficult year,” they said. “We are continuing the work of the Transgender Faith and Action Network, the job readiness work we do with the trans* community and youth, and are also deepening the intersectional culture shift work we do with organizations like SONG, Equality, The NAACP, Time Out Youth, Campus Pride, SAGE, The Powerhouse Project, and others within the region.”

Last month ended only one year as a fully-staffed organization, they said, marked by the launch of two large programs.

“While this has been a challenging period, it has helped us refine our processes and grow deeper in our mission-driven focus and work,” the group said. “The Board and staff are committed to growth and transparency. We will keep you updated in reference to the 501(c)(3) reinstatement and any other developments.”

Freedom Center: Unaware of filing requirements

The automatic revocation of the Freedom Center’s tax-exempt status caught the group off guard when it learned of the matter last month, they said.

“We became aware of the fact that our tax exempt status had been automatically revoked in late August 2014,” they said. “We were told it was due to the fact that we had three consecutive years of non-filing. We assumed this was an error because we did not get our 501(c)(3) acceptance letter until 2012.”

The board had already discussed needing a 990 filing for 2013 and one was prepared by accountant John Spann in February and signed by Rawls in April. It wasn’t until the revocation they learned about filing requirements for previous years.

“We hired a CPA in 2013 when we were awarded a grant from the Arcus Foundation to hire staff and build capacity,” the group said. “Our CPA looked deeper into the matter and found that even though we did not meet the income threshold in 2010-2012 and had a fiscal sponsor because we were not yet a 501(c)(3) organization, we were expected to file a 990 postcard because we had an EIN. The revocation was automatic. Our CPA immediately got all the paperwork filed for the expedited retroactive reinstatement and it is being processed now.”

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Law Center staff ‘devastated’

The LGBTQ Law Center was founded as a Freedom Center program in 2013. Two attorneys, Kelly Durden and Sarah Demarest, came on board to assist needy clients on a variety of issues, including family law, end-of-life documents, employment, transition-related legal concerns, housing and more.

Durden and Demarest were told of the center’s closure on Sept. 17. Both were laid off and they packed up their office and finally closed down last week.

“Both Kelly and I are completely devastated,” Demarest told qnotes. “We were blindsided and we had absolutely no idea we would have to be shutting down this week.”

Demarest said they are concerned about their clients and the community’s continued needs.

“We are really concerned about the impact this will have on the community, but we are committed to making sure our clients are taken care of in this transition,” she said. “We’ll absolutely continue to take care of our clients and represented those we can represent and make sure everyone else well taken care of.”

The law center, Demarest said, wasn’t lacking for work, with appointments booked for weeks in advance.

“From the day we opened we were bombarded with people needing service,” she said. “We had just talked with Bishop Rawls about needing more attorneys. We were slammed. We were turning people away.”

Last year, she said, the center handled nearly 300 individual cases. The center also held several legal clinics and workshops across the state — including a workshop trip to Raleigh last fall which ended with Durden and Demarest hospitalized with minor injuries after a run-in with a deer on the interstate.

The law center didn’t back down from controversy, either. Earlier this year, it took on the high-profile discrimination case after a transgender Central Piedmont Community College student claimed school personnel had harassed and intimidated her.

Demarest has now taken on contract work and is looking for full-time employment.

“I am absolutely devastated. We poured our hearts and souls into this work,” she said. “I’m just so sad and broken-hearted for my clients and for the loss for this community.”

Read more on this story

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Posted by Matt Comer

Matt Comer previously served as editor from October 2007 through August 2015 and as a staff writer afterward in 2016.

2 Replies to “Law Center shuttered after parent org loses tax-exempt status”

  1. Where is all that grant funding going if there is only an ED and no staff?

  2. Community Member #2 September 30, 2014 at 3:41 pm

    Great question, but more importantly, why did they not prepare for this knowing what they had in the bank and were budgeting for. I commend Kelly and Sarah for their work and I know that it was a terribly underpaid position, but I hold the ED and this accountant or bookkeeper on staff responsible for this travesty. This is just like the LGBT Center and is inexcusable. How do you not know you should file a 990 and how do you lose your 501 (c) 3 status when you not only are ED but pastor of a congregation. Let the powers that be investigate all of this ED’s non-profits current and past and I would like to know what her salary is and why does she defer, if they have lost status then these monies should be returned to group that offered that particular funding. This is just terrible for our community and an embarrassment.

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