A nonprofit development affiliate of the Philadelphia Housing Authority that quietly amassed $66 million in assets during the tenure of ousted director Carl R. Greene was stripped of its tax-exempt status Thursday by the Internal Revenue Service.

Michael P. Kelly, the authority's administrator, had said the impact could be "catastrophic" after The Inquirer reported on May 29 that the nonprofit's tax status was in jeopardy because it had failed to file required annual IRS reports known as Form 990s since 2006.

As a result of the revocation, income earned after May 17, 2010, by the Philadelphia Housing Authority Development Corp., or PHADC, is no longer exempt.

"They may have to begin paying taxes on that income," said William Cressman, an IRS spokesman in Philadelphia.

The revocation also raises questions about housing deals worth about $30 million that are under way or planned and that depend on PHADC's being a nonprofit, including $10 million to redevelop the Queen Lane public-housing project.

The revocation was part of a sweeping IRS action that eliminated tax-exempt status for 275,000 organizations nationwide that had failed to file Form 990s, which disclose sources and uses of money.

PHADC earned large, tax-free fees developing more than 2,000 public-housing units in the city, and Greene had a free hand to select the architects, engineers, contractors, and lawyers it used. The nonprofit also provided Greene with a large pool of money to apply to pet projects, such as a planned $20 million PHA headquarters on Chestnut Street.

Greene's lawyer, Clifford Haines, could not be reached for comment. He has said that Greene's duties did not include tax matters.

Greene was fired in September after disclosures that he had secretly paid $648,000 to three PHA employees to settle sex-harassment cases.

Kelly has said Greene controlled decision-making for the nonprofit. It has no staff and relies on PHA employees.

There is no process for appealing the IRS ruling, and organizations such as PHADC will have to reapply to the IRS for a tax exemption.

Under a change in the tax code in 2006, certain types of tax-exempt groups that previously did not have to file financial reports with the IRS were required to do so. Failure to comply for three years meant the automatic loss of tax exemption.

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

A survey by GuideStar, a national nonprofit service organization, indicated that PHADC was the largest nonprofit in Pennsylvania to be targeted by the IRS. A state-chartered credit union association with more assets than PHADC no longer files Form 990s because its 100 member credit unions now do so individually.

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

Kelly said PHA would ask the IRS to clarify the nonprofit's status but would begin filing an annual Form 990.

He said PHA views the development business as a tax-exempt affiliate of government, a category of nonprofit that still does not have to file annual statements with the IRS.

Tillman said in a statement, "We recently filed a ruling request asking the IRS to confirm that PHADC is indeed exempt from filing annual returns."

If the IRS stands by the revocation, she said, PHADC "intends to immediately request retroactive reinstatement of its tax-exempt status and will file all necessary documents."

Started in 1997, PHADC did not become active until 2001. That's when Greene began an aggressive redevelopment of public-housing properties, including the demolition of older high-rise projects and the construction of more spread-out, mixed-income neighborhoods of apartments and single-family homes.

As a nonprofit, PHADC was able to acquire money from sources that wouldn't be available to PHA, such as foundations and donations.

As a working business, it earned fees of up to 10 percent of the overall cost of construction projects, and accumulated large reserves of cash and short-term bonds.

It also received direct contributions from PHA, and paid out millions to help cover the cost of new development work.

In complex housing deals involving tax-credit financing, the nonprofit acted as a bridge between PHA and private investors.

Kelly said PHA had drawn up a 12-point "corrective-action plan" for the nonprofit, including improved record-keeping and better oversight. He called it "too valuable not to exist."

Contact staff writer Jennifer Lin at 215-854-5659 or jlin@phillynews.com.