Charter Schools and Uncle Sam

Posted on Thu, Nov. 17, 2005

Report: Some charter schools surrender state money to IRSAssociated Press

AKRON, Ohio - Some state funding intended to help privately run charter schools in Ohio ends up going to the IRS instead.
Despite urging from the state that charter schools become designated as nonprofit corporations to avoid federal taxes imposed on for-profit enterprises, most but not all comply, a newspaper reported Thursday.
Lawmakers created charter schools in 1998 as an alternative to traditional public school districts, arguing that competition would help improve education for all children. The schools are publicly funded but privately run and free of many regulations that traditional districts must follow.
Charter schools have grown from 15 schools in Ohio to 250 schools this year, serving 65,000 children. The state estimates it will pay $441 million to charter schools this year, still a fraction of the state's annual $7 billion education budget but a figure growing each year.
To qualify as nonprofit, charter schools must complete required paperwork, although some still choose not to do so. Operators of at least 12 charter schools paid the IRS about $311,000 out of state aid over a recent three-year period, according to an Akron Beacon Journal review of audits of charter schools. The most recent complete audit was for the 2003-04 school year.
Of the 12, Akron-based White Hat Management operates seven schools it calls learning centers. The Leona Group, a school-management company in East Lansing, Mich., operates the others.
A message requesting comment was left Thursday with White Hat Management.
Kelly Updike, spokeswoman for the Leona Group, said that because Ohio doesn't require federal nonprofit status, the company did not apply. It since has begun the application process, she said.
Ohio's auditor has notified at least four other schools about possible violations of federal tax law. Jennifer Detwiler, spokeswoman for Auditor Betty Montgomery, said the auditor has no enforcement power in the matter.
Another 23 schools have not received their nonprofit status from the federal government, although they either intend to apply or are waiting on word from the IRS regarding their applications, the Akron newspaper reported.
The Columbus-based Electronic Classroom of Tomorrow, the state's largest charter school with more than 7,000 students, has been in operation for six years and has yet to receive its nonprofit status, although spokesman Nick Wilson said the school recently applied because the status is needed for federal grants. He said the IRS has simplified the process.
"If a charter school has the opportunity to not be taxed, it seems silly to not take advantage of that situation," Detwiler said.
Department of Education spokesman J.C. Benton said that the department tells charter school operators they should apply for federal nonprofit status.
In 2002, Rep. Jon Husted, a Republican from suburban Dayton who is now the House speaker, sponsored a charter school bill that did not require the nonprofit status, although it explained that no state funds for the schools should be used to pay federal or other taxes.
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ORC 3307.15 - not just a wish, IT'S THE LAW!