Special Report on CALA Taxes

Special Report on CALA Taxes for 2008 and 2009
December 15, 2010

Dear CALA Board:

I am writing to report on the CALA tax issue as raised at the CALA membership
meeting in Washington DC, June 27, 2010.

For those who were present at the CALA membership meeting in Washington DC, you
will remember that one of our members, Clement Lau, who is a law librarian at
the University of Baltimore, raised the question of whether CALA had filed
taxes for the past two years, 2008 and 2009. He was doing homework for a class
and wanted to use CALA as a case study. To his surprise, the only filed tax
forms by CALA he could find were from 2007 and prior. He could not locate
CALA's tax forms for 2008 and 2009. He was very concerned about this, as we all
should be, that this would have serious legal implications for CALA as a
non-profit organization. Every CALA member present, including myself, was
surprised to learn that no tax forms were filed for 2008 and 2009 from CALA.  We
all realized this was a serious issue. Since former CALA Treasurer, Shuyong
Jiang, was not present at the meeting, we had no way of knowing at the time if
this was in fact true.

At the Board meeting on July 28, 2010, because of the serious nature of the tax
issue, a discussion was held to explore how we should proceed as an
organization. The Board decided, at the suggestion of CALA President, Zhijia
Shen, that CALA Executive Director Haipeng Li would work with the new CALA Treasurer, Songqian Lu
on this. Zhijia asked Haipeng to contact Shuyong Jiang, former CALA Treasurer,
regarding the question of whether CALA had filed taxes for the years of 2008
and 2009.

On June 29, 2010, Haipeng sent an email letter to Shuyong Jiang asking her to
respond to the tax issue, among other financial questions. Response from
Shuyong Jiang which she sent to the Board list of last year on July 21, 2010
and confirmed the following:

taxes were not filed to the IRS in 2008 and 2009.

p.s. please see Guidelines and
Procedures for Financial Reporting: http://www.cala-web.org/node/132.

Upon the confirmation, Haipeng contacted Zhijia
immediately about the status of the tax issue. As the CALA new treasurer,
Songqian, was in China, Zhijia and Haipeng discussed the seriousness of the
issue and explored steps of how to move forward. Haipeng suggested that we
contact Clement Lau right away to seek assistance and advice, if possible, and
we agreed. Haipeng then initiated contact with Clement and asked for help.
Clement was gracious and willing to help. While he indicated he was not a
legal/tax expert, Clement consulted tax laws and provided the following

  • For nonprofit
    organizations, if tax is not filed for three consecutive years, the non-profit
    status of the organization is automatically revoked;
  • A penalty fine may be
    imposed on the organization;
  • Immediate back filing on
    taxes is suggested and necessary;
  • Work with a CPA to seek
    a solution on this;
  • Keep a sound record of

Haipeng and Zhijia discussed the options/suggestions
and decided to call an Executive Committee meeting. On July 22, 2010, Zhijia
called a meeting with the Executive Committee to accomplish the following:

  • Report on the investigation
    on CALA taxes and findings indicate that no taxes were filed for 2008 and 2009;
  • Propose to the Executive
    Committee to approve the hiring of a CPA to assist CALA on tax back filing;
  • Propose to the Executive
    Committee to approve a budget of $500 to hire the CPA (later Haipeng was able
    to negotiate it at a reduced rate of $300 even though his charge was $1,000).

On July 26, 2010, the Executive Committee approved
the hiring of a CPA to help with CALA tax back filing at a fee of $300 and
asked Haipeng to go ahead and work with the CPA (identified and based in
Chicago) on this urgent issue.

On July 27, 2010, Haipeng contacted the CPA and provided necessary information
(Treasurer's reports for 2008 and 2009 and 2007 tax file) to him. The CPA
completed CALA tax forms of 2008 and 2009 on August 15 which were sent and
received by Songqian on August 19. Haipeng and Songqian met several times and
spent many hours to work on this issue. On August 21 Songqian and Haipeng went
over everything to make sure all was in place regarding the tax issues to get
ready for the filing.  At the advice of the CPA and others, a letter to
explain the delay of the tax filing was drafted by Haipeng, revised and
approved by the Executive Committee to accompany the tax forms. As the current
treasurer, Songqian signed the tax forms on August 21 and sent them out on
August 23 via registered mail.

Thus CALA tax
forms for 2008 and 2009 had been back filed on August 23, 2010.

On November 15, 2010, Songqian received a letter from
the IRS.

The IRS letter
stated a penalty fine of $1,516.25 on CALA's tax return of 2008 (Payment
Deadline: 11/29/2010 and interest will accrue after the deadline).

Songqian called Haipeng right away. Haipeng asked
Songqiang to immediately inform the Executive Committee of the issue. Thus a
discussion was held immediately by the EC. Haipeng proposed that we send a
letter to the IRS to request a waiver or reduction in the penalty and drafted
the letter. The majority of the EC (Haipeng, Min, Songqian, Esther) agreed, but
two members of the EC (Zhijia and Xudong) objected, proposing CALA sent in
payment right away by the deadline. Discussions around this issue were held.
Songqian commented that this was only the penalty for 2008 and it was likely
there would be a penalty for 2009 so we should estimate over $3,000 in federal
fine to be imposed on CALA. This was a large amount for a small organization
like CALA and the amount would be the equivalent of over the total of 100 CALA
regular membership fees. At least we should try. After some discussions, it was
agreed that the letter be revised and finalized. Songqian sent the letter out
to the IRS on November 24, 2010.

On December 7, 2010, Haipeng contacted the IRS to
follow up on the tax issue. Here is his report to the CALA Executive Committee
after his conversation with the IRS:


Report on the IRS Response to CALA's Tax Penalty


December 7, 2010, 3:30 pm


Dear Exe. Committee:

I just got off the phone with IRS and have good news for you!

In short, the CALA tax penalty for 2008 was removed and we now have a
0 balance with the IRS.

Here are the details for our record:

I called the IRS at 2:10 pm on Wed. Dec. 7, 2010 and spoke with the IRS Officer
John Riley. His ID # is 1000144786.

He first made sure I was authorized to speak on CALA's behalf. I told him Yes
and provided all the information per his request such as the CALA Tax ID,
Notice #, date of filing of taxes, and the letter we sent to him.

Currently the contact info is still under Ling Jeng and I asked him to change
that to Songqian Lu and also provided Songqian's work phone number.

We then talked about the letter. There were some technical issues regarding the
letter. As letters come to the IRS, they are scanned and made into digital
files. Our signatures were somehow messed up and he did not see them. I
explained to him we were rushing to send him the letter and did not have time
to gather our signatures so we used electronic ones. He indicated he could
accept them.

Then we started talking about the penalty for 2008. As I indicated he had a lot
of questions about our organization but I focused on the fact that CALA has a
history of filing taxes dutifully except for the two years in question, and our
organization was taking this very seriously. After some questioning, he
indicated that he accepted my reasoning and will remove the penalty.

Another IRS letter (Notice # CP504B) with the penalty amount and accrued
interest has been sent out to us already. His advice is that we do not do
anything when we receive it and can discard it if we want to, because it does
not reflect the conversation we had today.

In about 6 weeks, we will receive another notice from IRS (Notice # CP210)
indicating that our tax balance is 0, which will be the correct notice based on
our conversation today.

Our 2009 tax filing was fine because IRS had an extension. Without the
extension, we would have had another penalty. We got lucky there.

Songqian and I will continue to work together to deal with the notices when she
receives them. I am glad that we contacted IRS through writing and phone for
resolving this matter.

Please let me know if you have any questions.

Thank you for working for the best interest of this organization and for
protecting CALA.


Thus CALA's federal fine
from the IRS for 2008 has been waived and there will be no fine for 2009.

summarize, this is a good lesson to learn for CALA as an organization. CALA
could have lost its non-profit status if this mistake had continued for three
years in a row, in addition to hefty fines imposed on CALA from the IRS. This
would have devastating and long term negative impact on CALA as an
organization. CALA should be more vigilant in legal matters in the future, and
all officers should use better judgments and take more responsibilities in
their respective roles to safeguard our organization.

As we all know, even though this time the penalty has
been waived, there is a record in the IRS for this incident and it is more
likely that CALA will be audited in the future.  Let's all work together to protect our organization
the way we should. I would like to thank the Executive Committee for taking
immediate actions to prevent the tax situation from further damage. I
especially want to thank Songqian Lu, the current CALA Treasurer, for her
endless hours of hard work on straightening out the many financial
issues/problems she inherited, and the tax issue in particular.

Thank you.

Submitted by

Haipeng Li
CALA Executive Director

p.s. all communication is available upon request by
the CALA Board.