PHA's development arm stripped of tax exemption

The Internal Revenue Service revoked the tax-exempt status of the Philadephia Housing Authority's development nonprofit - a move that the housing agency's director earlier said would be "catastrophic."

The $66-million nonprofit guides all development work for the housing agency and has steered the construction of thousands of units of affordable housing in the past decade.

The loss of nonprofit status means the development corporation will have to begin paying taxes on income and re-apply for tax exemption.

The organization "is in essence considered a taxable entity," said William Cressman, an IRS spokesman in Philadelphia. "This is treated like any other entity that earns money."

The nonprofit - called the Philadelphia Housing Authority Development Corp. (PHADC) - was one of about 275,000 organizations across the country that have lost their tax exemption. The IRS notified them today and said most were defunct groups.

The revocations were automatic because the groups did not comply with a tax-code change in 2006.

Under that law, certain categories of nonprofits that previously did not have to file financial information statements with the IRS were required to do so.

In Philadelphia, PHADC was one of 1,966 Philadelphia non-profits to lose tax-exempt status. Statewide, nearly 10,500 were hit. For New Jersey, the total was 7,876.

"We are aware that PHADC is on the list and we will be in contact with the IRS," said Nichole Tillman, a PHA spokesperson.

The Inquirer reported on the nonprofit's potential loss of its tax exemption on May 29. In a previous interview, Michael P. Kelly, the authority's administrator, said PHA would immediately begin filing IRS financial statements, called a Form 990, and seek a clarification of the nonprofit's status.

He said PHA views the development business as a tax-exempt affiliate of government.

"PHADC intends to immediately request retroactive reinstatement of its tax-exempt status and will file all necessary documents," Tillman said in a statement today.

Cressman said most of the organizations "will want to apply for reinstatement as tax exempt organizations. They can also apply for retroactive reinstatement."

For those that can eventually win retroactive reinstatement, he said, "it would be effective as if they did not lose their tax exempt status."

Started in 1997, the housing authority's development nonprofit did not become active until 2001. It acted as a developer on PHA projects, hiring engineers, architects, contrators and lawyers, while earning fees of up to 10 percent of a project's cost.