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Grex > Coop9 > #22: Apply for 501(c)3 status? | |
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ajax
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Apply for 501(c)3 status?
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Dec 13 16:59 UTC 1996 |
A discussion of Grex's possibly applying for 501(c)3 tax exemption
was brought up in item 20, about the board candidate survey. I thought
it would be useful to dedicate a whole item to it. Here are the five
most recent comments from item 20....
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#76 of 81: by Rane Curl (rcurl) on Thu, Dec 12, 1996 (12:49):
Here is what I think: Mary has always played the role of Chicken-Little in
discussion of 501(c)3 for Grex. In fact, no attorneys (much less tax
attorneys) are required, and the most "costly mistake" one can make is
being turned down, and the cost is the application fee. All it takes is a
moderately intelligent person with some professional experience (in
practically anything) with the TIME and *general suppport of the
organization*. That person fills out a form 1023 as best they can,
preferably following the model of a successful non-profit (so as not to
get confused on whether one doesn't want to be a 509(a)1 or 509(a)2
foundation), and submits it. The IRS then responds with some form
questions, which are tedious to respond to. But if the person doing the
leg work has the time, and no one is carping from the sidelines to make
the volunteer throw up their hands and quit, the job will be done, you'll
get a 501(c)3 tax exemption, and donations (including dues) will be tax
exempt. Thousands of organizations have done it, and so can Grex.
As an aside, my impression was that the IRS office that did all this when
we went through the process worked out of a place like the old Grex
dungeon. All their communications (as late as 1989) were mimeographed form
letters. If anything, they have a bigger load and fewer employees today.
One must just be careful and optimistic when completing the form.
#77 of 81: by Richard Wallner (kerouac) on Thu, Dec 12, 1996 (12:55):
sounds like a 501(3)(c) mightbe worth it....the extra donations that would
come from users who could deduct them from their taxes could help pay for a
T1 or ISDN or parts fora a new SUN.
#78 of 81: by Steve Gibbard (scg) on Thu, Dec 12, 1996 (13:33):
When getting into an area where I really don't know what I'm doing, it
certainly makes me feel a lot better to ask somebody who does. Is there some
reason we should be scared of talking to a tax lawyer about the risks before
#79 of 81: by Rob Henderson (robh) on Thu, Dec 12, 1996 (13:46):
Apart from the possible cost of a consultation, none that I can
think of. I've been hoping that we could hand the 501(c)3
processing over to a lwayer, rather than wasting still more time
on it here.
The very first Board meeting I ever attended was in August of 1992.
Our 501(c)3 application was being discussed back then. Four and
one-third years later, and we're still here? A lawyer could advise
us one way or the other, and then we could either move onward, or
get on with other things.
#80 of 81: by Jan Wolter (janc) on Thu, Dec 12, 1996 (14:45):
The basic reason I think we've been timid about 501(c)3 is not, as Richard
says, that we don't really want to be a charitable organization. It's simply
because of what's been going on on Arbornet, the endless bickering over what
Arbornet has to do to be in "compliance" with the 501(c)3 law. Nobody who
survived that battle (by fleeing it - it wasn't over last time I was on
M-Net) wants to reprise it here. So we are all a bit nervious about 501(c)3.
My understanding is that the problem at Arbornet was that they claimed the
501(c)3 on the basis of the "educational" value of the system, not as a
"charitable" organization, and many people feel that the "eduactional" thing
has to be satisfied by actually giving classes, not just in an incidental
way. So Arbornet's real problem was that (at least to some people's
understanding) they're 501(c)3 statement promised to do things that they
weren't doing.
For Grex the solution is simple. We should be careful that our application
describes quite exactly and explicitly what we ARE DOING NOW. Not things we
think we could do or should do. If we can get that status on that basis,
then that's great and we should do it. If we can't that's too bad. Either
way in the future we might change, but if so, we can then change our status.
#81 of 81: by Rane Curl (rcurl) on Fri, Dec 13, 1996 (03:47):
There are no "risks". If you want to ask a tax lawyer, go ahead, but get a
free one, since he'll give you the advice you have already been given.
Arbornet should have changed from "educational" to "charitable" a long time
ago. It is fine to have "educational" purposes *within* one's charitable
activities, but it is an entirely different category to be tax exempt on an
educational basis.
One addition to Jan's last (quite valid) comment is that we should not forget
that our Articles specify that our purposes are such to allow us 501(c)3 tax
exemption, without being specific about the details. Since one must submit
one's Articles with the application, and the IRS *reads them*, the
application must reflect the Articles as well as "what we are doing now".
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| 53 responses total. |
krj
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response 1 of 53:
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Dec 13 17:52 UTC 1996 |
After all the political turmoil this has caused Arbornet,
I don't see much reason to play around with this.
The only reason to get become tax exempt would be if we anticipated
getting sizable donations; possibly donations from outside our user base.
Currently we are funded by modest donations from our user base.
This is good; it means we own ourselves and we don't owe allegiance
to anyone else. If the members decide that Grex should really become
a networked Nintendo game machine (to pick a ludicrous example) we
can do that.
A 501c3 exemption means that we make promises to the Federal
Government about our activities. And it implies that we are going to get
outside donors, and there's that old adage about the person who pays
the piper calls the tune.
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rcurl
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response 2 of 53:
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Dec 14 01:34 UTC 1996 |
With 100 members and 14,000 users, *any* inducement to join will bring in
more members, and the tax deduction on $60 is both an inducement, and also
conveys a sense of "doing good" for a charity.
Arbornet is a freak. I have never otherwise *heard* of a charitable
organization fearing, much less not aggressively pursuing, tax exemption.
The only obligation of a tax exempt organization is to continue to do
those things (or more) for which it received tax exemption. There is no
"allegiance" to anyone, more than our allegiance to our community, our
state, our country, and one another.
Most non-profits survive on *small* donations - member dues and gifts in
kind. Yes, tax exemption is pretnty ecessary for large donations, but
those are pretty rare for small special purpose non-profits. Tax exemption
brings in more small donations - memberships - the bread and butter.
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aaron
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response 3 of 53:
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Dec 14 06:28 UTC 1996 |
Are you aware that, a few years back, Arbornet secured a $7,500 grant for
K-12? Granted, that's a small grant, but how does it compare to Grex's
annual budget?
The "freakish" thing about Arbornet is that, after that initial success,
it pretty much gave up on the idea of securing grants or large donations.
I believe that Arbornet's problems relate directly to about 2.5 years of
very bad management, and a total lack of planning. Had the prior course
been pursued, Arbornet would likely look very different (and very wealthy)
at this time.
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chelsea
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response 4 of 53:
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Dec 14 14:00 UTC 1996 |
How did K-12 go?
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kerouac
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response 5 of 53:
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Dec 14 16:22 UTC 1996 |
yeah but I'm sure the grant came with conditions. Like if the government
isnt satisfied with K-12 it could ask for the money back. If Arbornet
goes under and the K-12 with it, I wouldnt be surprised if the gov't starts
asking questions. They rarely write checks for $7,500 and just go away.
I guess if it wasnt for thatmoney, mnet would be already bankrupt by now.
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rcurl
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response 6 of 53:
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Dec 14 19:36 UTC 1996 |
I don't recall what a K-12 grant calls upon the recipient to do. One must be
very wary of taking on big obligations in a volunteer organization without
an existing infrastructure (i.e., paid staff).
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janc
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response 7 of 53:
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Dec 14 20:23 UTC 1996 |
The problem with K-12 is that Arbornet simply never really had enough people
who wanted to donate time and work to the project. Arbornet's volunteer pool
was all people who liked M-Net. They tried to undertake a project that just
wasn't very broadly supported by the people in the organization.
Aaron, you've been arguing for years that Arbornet should be doing what its
paperwork says it exists to do. But it can't really do that because very few
of the people associated with the organization really care about that mission.
Keats did, for a while, and Bruce Price had some interest. But most of
Arbornet's people mostly just want to run and use a conferencing system.
Yeah, the management failed to bring the paper mission and the user's
missions into any kind of alignment, and that is mismanagement. But I for
one don't believe that any set of leaders can magically turn Arbornet into
an educactional institution. What they could have done is change the
paperwork to describe a mission that their people are willing to pursue.
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rcurl
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response 8 of 53:
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Dec 15 07:37 UTC 1996 |
That's not too unlike the situation on Grex. Previous discussions of
getting 501(c)3 exemption, and of the interpretation of the Grex Articles,
have brought out the "tension" between what the Articles say and what
501(c)3 exemption is based upon, and what grexers like to do. For example,
the statement of even founders that Grex was meant to be a "cooperative",
or even a "club", but the attorney wrote the wrong things in the Articles.
Perhaps Grex was saved the fate of Arbornet by not having any founders,
or outspoken staff, to try to take it too far in the direction of public
service programs. Grex too would not have been very successful without
more permanent (paid) staff, simply because of the lack of a significant
number of members with a public-service motivation.
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chelsea
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response 9 of 53:
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Dec 15 14:21 UTC 1996 |
I consider what Grex offers, an Unix system, with resources open
to the public, mail, conferencing, and lots of opportunity
to share with an international community of users to be quite
a nice project. If that's all we ever offer, without mandatory
fees or membership restrictions, we could be very proud of
what we've accomplished.
The problem I see with 501(c)3 is that those who support the
system get a lot of personal benefit from their donation.
In fact, I'd suspect most folks either give because they
are willing to support the system in order to see it
available for their use and pleasure. The only pure donation
would be if someone gave money never expecting to take out an
account.
Now, if we do as Jan suggested, and applied being very honest
about our donations and how members get a whole lot
in return for their $6, and they give us the exempt
status, GREAT! But I'd sure want to see it made so clear
that we wouldn't feel obligated to do more to justify
(c)3.
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srw
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response 10 of 53:
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Dec 15 17:20 UTC 1996 |
I agree completely with Jan that we should describe what we do and see if we
can get a (c)3 status for it. I think we can. I think if we did it would help
greatly. I think Arbornet's problems are irrelevant here and should be
ignored.
We have had offers of equipment that we could have used which turned out not
to be available because we lacked (c)3 status.
I have personally offered to increase my donation if it were deductible.
I think Mary is wrong that our members get any great value for their $6
donations. I think it's negligible, but I would consider eliminating those
perks if we had to in order to get the greater (c) 3 perk of tax-deductibility.
I just don't think we have to.
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kerouac
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response 11 of 53:
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Dec 15 18:13 UTC 1996 |
#10...arbornet's problems are most certainly not irrevelant. What happened
to them can happen here (particularly if users like srw deem there to be
no lessons to be learned from mnet's experiences) Lessthan
two years ago, mnet had more than three times the money that grex did
in thebank, and now it is nearly bankrupt. Things can go bad that fast.
M-net's membership has declined rapidly. Grex's hasnt, but grex's
membership also hasnt grown. It has been flat. 501(3)(c) is a good
idea because it would be a mistake to be satisifed with grex's current
status quo. Too much is happening in cyberspace, too many new
technologies are being developed, for any board to accept status quo.
The wrong combination of circumstances and the money, as mnet found out,
can disappear in a flash. And without showing any growth or change, as
grex is not, it could happen even faster.
If 501(3)(c) is a way to bring in more money, to finance more upgrades
and spur more growth, I dont see how anyone can rationally say this isnt
worth going after. Grex doesnt have enough money or members to be
satisfied in any way with the status quo.
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rcurl
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response 12 of 53:
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Dec 15 20:36 UTC 1996 |
Re #9: those that *don't* support the system also get a lot of personal
benefits from their non-donations. Since that is the case, members are
altruistic in supporting the system, except for a few lame options that
are reserved because of system management requirements. Our application
should make it clear that members and non-members alike get nearly the same
benefits.
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chelsea
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response 13 of 53:
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Dec 15 23:34 UTC 1996 |
I agree. The "nearly" should be clearly defined though because even
though the differences don't amount to a whole lot right now, neither
do the donations. You don't have to get a whole lot in return to
get $6.00 worth of "value". It is very important we be as up-front
with the IRS as possible. (Almost all of M-Net's muddle with
their status is based on confusion as to what they do compared
to what the IRS thinks they are doing.) And whether there is
a chance on this great earth of us ever getting audited should
make no difference whatsoever in terms of the content of our
application.
If it should ever come off that we actually do make an application
for 501(c)3 the entire application should be make available to
the membership so everyone can see how we are presenting the
organization.
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srw
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response 14 of 53:
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Dec 15 23:38 UTC 1996 |
It is precisely because of the mismatch between the application for
educational status on M-net and the reality of M-net that I believe that their
problems do not apply to us. I agree with what Mary said about making the
application available.
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rcurl
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response 15 of 53:
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Dec 16 04:47 UTC 1996 |
That would be helped a lot if the 1023 were available on line. I'm off on
its scent....
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rcurl
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response 16 of 53:
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Dec 16 05:15 UTC 1996 |
I now have form 1023 on my Desktop - all 203K in PDF. The only problem is,
it isn't a computer form. Is there a way to convert a PDF form to a computer
form? Then it could be filled out and subsequently posted for review, even
if it has to be printed to submit. Oh yes - I got it from
http://www.irs.ustreas.gov/plain/forms_pubs/forms.html
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dang
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response 17 of 53:
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Dec 16 15:35 UTC 1996 |
Heck, post it as a JPG, so people can download it and view it. Even having
the exact wording of questions would be nice.
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rcurl
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response 18 of 53:
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Dec 17 06:56 UTC 1996 |
How do I convert a PDF to a JPEG? Or, how about if I just upload the PDF?
Anyone with the Acrobat reader can read it. (hmmm...though anyone with
the Acrobat reader has a web browser, and can read it at the URL...). What
is anyone's pleasure?
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janc
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response 19 of 53:
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Dec 17 18:52 UTC 1996 |
I can read PDF and I'm pretty sure I can convert it to JPEG or most any other
image format.
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dang
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response 20 of 53:
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Dec 17 20:25 UTC 1996 |
(JPEG was just a suggestion based on it's universality. I would have
suggested BMP, but that's not as easy for Mac users to read, and it's HUGE!)
I can't read PDF as far as I know, so going to the web site and looking
wouldn't help, if it's in PDF there too.
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omni
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response 21 of 53:
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Dec 17 20:25 UTC 1996 |
I can convert it, as well. In fact, I could upload a program called
"gif converter" which does all that translation.
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popcorn
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response 22 of 53:
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Dec 17 21:17 UTC 1996 |
I believe the IRS site also has a PDF reader program. That's hearsay, though;
I've never been to the site.
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rcurl
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response 23 of 53:
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Dec 18 07:01 UTC 1996 |
I have GraphicConverter 2.4.3, which has about 25 different graphics formats,
but NOT .PDF. But Valerie is correct - you can download a .pdf viewer from
the IRS by following the links from
http://www.irs.ustreas.gov/plain/forms_pubs/forms.html.
Well, rather than just talk about it - the Form 1023 is in /u/rcurl/k1023.pdf,
and if it survived the file transfer - have at it.
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rcurl
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response 24 of 53:
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Dec 18 18:29 UTC 1996 |
I have doubts that the transfer of the binary file k1023.pdf survived the
transfer, as I have been unable to transfer it back and open it. I have
therefore uploaded a uuencoded version as /u/rcurl/k1023.pdf.mu, which
I was able to download, convert and open.
[These files in my directory make it exceed the Grex filespace limit of 1 MB,
so everyone please reach some conclusion of whether it is useful, or not.]
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