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Grex > Coop6 > #102: FYI - The IRS and Grex Dues | |
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| 24 new of 48 responses total. |
chelsea
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response 25 of 48:
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Mar 7 00:22 UTC 1995 |
After spending almost three hours listening to M-net's BOD discuss
their attorney's findings and recommendations I'm now, more than
ever, left with the feeling Grex should get professional advice
as to what classification best suits our organization's needs
and then apply for that status.
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steve
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response 26 of 48:
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Mar 7 03:29 UTC 1995 |
Mary will you be our unofficial fact finder and see who there is to
talk to, and how much they'd charge?
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scg
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response 27 of 48:
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Mar 7 04:27 UTC 1995 |
Somehow, I get the feeling that phasing out everything that is not
"entertaining" rather than "educational" won't go over too well on M-Net.
Although I feel that Grex is, if in a round about way, very educational, I
don't think I could support 501(c)3 status here *if* it turns out that we
would have the kind of strings attatched that M-Net thinks they do. I'm
assuming from that that the need to change the focus of M-Net comes from
they way they applied for 501(c)3 status, and not the status itself. I
don't want to base what Grex does on M-Net's dealings with the IRS, or on
M-Net's perceived need to change, but we should definately get our own legal
opinion on this.
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steve
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response 28 of 48:
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Mar 7 04:48 UTC 1995 |
Quite right. But I don't see the need to so completely seperate the
entertainment based things from educational, nor do I even see a clear
line between the two.
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jep
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response 29 of 48:
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Mar 7 05:11 UTC 1995 |
A couple of comments may be appropriate here. For those who don't
know, I am vice president of Arbornet. All of the following comments are
made from that perspective, however, none of them necessarily reflect a
consensus of opinion of the Board of Directors of Arbornet.
501(c)(3) has been wonderful for Arbornet, and we have used it to
greatly benefit M-Net, as well as initiate other worthwhile projects.
There are several ways of viewing the letter from Michael Eizelman,
who gave us a couple of hours of pro bono (free) advice, and who is a
recognized expert in non-profit law. Some of the results of one of those
ways are under discussion in the M-Net policy conference. The discussion
should be enlightening to any on Grex who are interested in 501(c)(3)
issues. You are invited to participate in those discussions.
We have made, and will continue to make, adjustments to Arbornet, and
specifically to M-Net, in order to better comply with our 501(c)(3)
status. Some people feel these changes will spell the doom of M-Net. I
don't think so. I believe I am with the majority of M-Net users, and also
with the Board. We still have, regardless of our charter and the advice
given by our attorney, considerable freedom to act in our own interests.
There are many types of 501(c)(3) organizations, from labor unions to
art museums to the Red Cross. Some of those organizations are community
service. Arbornet is chartered for educational activity, as the letter
posted above indicates. Cyberspace would not need to charter itself as
educational. Also, though it is more difficult to change your
classification after you have already been granted 501(c)(3), it *is*
possible. Arbornet may have to expand it's charter; if we believe it
necessary, we will attempt this change. (I speak with confidence. *I*
will attempt it if it's necessary.)
Freenets are 501(c)(3), at least many of them are. If they can do
it, Grex can do it, and profit by it. I hope Arbornet's present
controversy will not discourage Cyberspace from attempting to become a
501(c)(3) organization.
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steve
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response 30 of 48:
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Mar 7 05:42 UTC 1995 |
Thanks for your comments John. I think and hope you are right, re
Grex.
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lilmo
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response 31 of 48:
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Mar 7 21:13 UTC 1995 |
As Mr Eizelman is, as jep says, "a recognized expert in non-profit law,"
and has demonstrated a willingness to do some pro bono work, I recommend
that chelsea at least speak to him, if only to get advice on to whom
else we might go for advice.
Just a thought
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remmers
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response 32 of 48:
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Mar 8 17:41 UTC 1995 |
M-Net's current situation strikes me as not good at all. Because of
their years of inattention to the requirements of 501(c)3 and movement
in directions that are apparently incompatible with those requirements,
they are now in the position of being told what they can and cannot do
by the IRS (implicitly) and attorneys (explicitly), and that they must
stop doing some of the things that have wide user support and that
have been responsible for building much of their current user base.
I don't see that the fact that many freenets have 501(c)3 is
particularly relevant to Grex -- most freenets are not nearly as open
and user-directed as Grex strives to be.
When an organization accepts 501(c)3 status, it is accepting a
government subsidy. Government subsidies always have strings
attached. Whatever status Grex decides to get, we had better be very
sure that any obligations we incur are compatible with what we really
want to do. I would put that concern ahead of any monetary benefits we
might receive from such status.
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rcurl
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response 33 of 48:
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Mar 8 19:09 UTC 1995 |
Speaking in generalities - none of the 501(c)3 organizations with which I
have been associated, or been a director or officer of, have ever felt the
slightest "tug" of any government strings (except for having to fill out a
990 or pseudo-990 form). There are so few obligations associated with the
status, in my experience, that one views 501(c)3 more as a badge of honor
than an onerous duty.
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chelsea
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response 34 of 48:
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Mar 8 21:41 UTC 1995 |
M-net's problem is that it is operating under a 501(c)(3) educational
status. This means they must be very careful to maintain what the IRS
views as an educational focus. Now, almost everything you can think of
doing has some component of learning associated with it, but for this
particular tax exempt status you almost have to think of the activity as
being something that a school would offer in its curriculum for it to meet
the definition. Discussion groups can fit the category but they must meet
some pretty stiff rules. Big no-no's are:
1. The presentation of viewpoints unsupported by facts being a
significant portion of the organization's communications.
2. The facts that purport to support the viewpoint are distorted.
3. The substantial use of inflammatory and disparaging terms
and the expression of conclusions more on the basis of
emotion than on the basis of objective evaluations.
4. The approach used is not aimed at developing an understanding
on the part of the audience because it does not consider their
background or training.
Another hurdle for M-net's plan and one Grex should evaluate prior to any
application being finalized - Their attorney reports that the IRS does not
see general Internet access as educational and as such offering general
access does not count as a tax exempt function. Sure, what's on the
Internet can be very educational, but simply learning to navigate to any
destination isn't enough for Internet access to qualify. Just like using
the telephone can be educational but isn't necessarily so. Games are a big
question mark. Ditto party and loads of social and recreational
conferences.
Trying to meet the IRS's "educational" criteria could mean some
major league disruption over there. The debate is just beginning.
And, at this point, even ditching the status would be a problem as
they've accepted thousands of dollars in tax-decucted donations
for their K-12 project.
Now, Grex's application would probably not be for (c)(3)educational but
rather for (c)(3)charitable which would mean we'd not have to maintain
such a strict emphasis on content but instead we'd get very defined rules
on how we get our funding. And just as the word "educational" carries
with it some obligations so does the word "charitable" in IRSese. There
would indeed be IRS rules guiding many of Grex's projects and policies.
But we would get some great donated used equipment. ;-)
Life is full of trade-offs.
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chelsea
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response 35 of 48:
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Mar 8 22:01 UTC 1995 |
At the last Board meeting, prior to the vote being taken to
truck-ahead with our 501(c)(3) application, I suggested we
contact Mr. Eizelman for some advice on these matters. The
feeling was that it would be inappropriate for us to call
him because (and I'm not sure I'll put this quite right) we
sure don't want to do anything that might blend M-net and Grex
politics.
I don't see contacting Mr. Eizelman as a problem, in the least,
but then I don't tend to think of the two systems as being
in any hot and heavy competition. If this guy is a non-profit
expert and he knows already knows quite a bit about local
conferencing systems, great! At least that was my thinking.
Regarding the suggestion I now call him in an "unofficial"
capacity. I'm not sure that would be appropriate. Any call
should be official or we're wasting valuable contacts. I'm
also not real interested in being point person here - this
issue is a time-sink if ever there was one.
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tsty
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response 36 of 48:
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Mar 9 09:49 UTC 1995 |
time-sink? what time-sink?
What are the thoughts on just waiting out the M-b0x situation
to see where it goes (doesn't go)?
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ajax
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response 37 of 48:
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Mar 9 15:26 UTC 1995 |
Excellent idea...Grex is good at waiting! :) Btw, I gather MNet's
501c3 filing is as a "charitable organization, under the educational
subheading," which differs from filing as an "educational organization."
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chelsea
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response 38 of 48:
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Mar 9 23:07 UTC 1995 |
Well, from what I heard at the meeting even though M-net has
always been reported to be 501(c)3 there was some discussion
that what it really has is 509(a)1, a subset of 501(c)3 that
allows narrowly focused organizations such as hospitals and
colleges the means to avoid the rule of thirds support tests
that general charity based organizations must meet.
So there are charitable educational organizations and educational
organizations. M-net is, in the eyes of the IRS, an educational
organization. Which is why their attorney told them that charging
for access isn't a problem.
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jep
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response 39 of 48:
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Mar 10 04:06 UTC 1995 |
When Craig Plesco called Mr. Eizelman, Mr. Eizelman stated that
Arbornet is a charitable organization with an educational focus, not an
educational institution like a university. This means we are still bound
by the 1/3 rule; that is, we must raise 30% of our finances through
charitable contributions. It also means we have more flexibility than
some people argued at our March 5 special Board meeting. We do not need
to be exclusively educational.
Though I've been hip deep in discussions about our 501(c)(3) issues
for several months now, I still have an incomplete understanding of them.
The issues are involved. However, I am optimistic that we will be able to
continue to operate M-Net as an appealing community service.
I will be spending a great deal of time working on Arbornet financial
and tax status issues. Forgive me if I decline the opportunity to discuss
them extensively here. (-:
As far as Grex is concerned, there is no doubt that 501(c)(3) is
constraining to the organization which has it, however, it is an overall
tremendous advantage. More so, of course, if you understand what you are
doing and get the proper classification to fit your real organizational
goals. (-: I don't think Arbornet's current problems should deter
Cyberspace, Inc. from pursuing 501(c)(3). As a Grex user, who greatly
values Grex for all kinds of reasons, I would very much like to see Grex
gain 501(c)(3) status. I cannot help much with the organizational effort
because of commitments of my time to Arbornet, and lack of knowledge, but
to what extent I can help, I will do so.
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nephi
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response 40 of 48:
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Mar 10 04:37 UTC 1995 |
Hold it. Weren't we talking about getting 301(c)(3)? Where did this
501(c)(3) stuff come from?
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wind
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response 41 of 48:
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Mar 10 04:43 UTC 1995 |
nephi, close your eyes, click your heels, and count to twenty.
then re-read #0.
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rcurl
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response 42 of 48:
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Mar 10 07:25 UTC 1995 |
509(a)(2) exemption from private foundation treatment is more appropriate
and desirable for Grex, than 509(a)(1). Grex would have no trouble now
meeting either subcategory requirements, which are essentially that
more than one third of support must come from gifts, grants, contributions,
membership dues, or related business income, *and* not more than one third
from investments and unrelated business taxable income. 509(a)(2) is
the more desirable category for a volunteer charitable 501(c)(3) tax-exempt,
however.
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chelsea
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response 43 of 48:
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Mar 10 10:11 UTC 1995 |
First off, no matter how you slice and dice it the one third rule will be
troublesome when you consider our membership Internet perk:
From IRS publication 557:
Membership fees included in the term support are those
paid for the purpose of making a payment to provide
support for the organization rather than to purchase
admissions, merchandise, services, or the use of
facilities.
Also, according to recent legal advice, offering Internet access doesn't
even qualify toward an educational mandate. So I'd kind of think any money
we raised by offering Internet access would have a hard time being
categorized as applying toward a tax exempt mission.
And if you're *still* looking for ways to wiggle though consider the
recent letter from the IRS to Grex where we were clearly told our dues are
not considered deductible. And if they're not considered deductible by
the "donator" then do you really think the IRS will consider the same
money pure charitable income on our end?
Again, 501(c)3 may be a good fit for Grex. But it will require we take a
good hard look at some of our current practices and clearly understand how
the rules will direct what's to come.
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chelsea
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response 44 of 48:
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Mar 10 10:16 UTC 1995 |
Money raised from selling used widgets at the JCC would probably
be considered income from the sale of merchandise, so it too
wouldn't count toward the "one third". The fact that is is
used and depreciated and worthless to us doesn't mean diddly.
If someone buys it for $20, according to the IRS it is "valued"
at $20, minimum.
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ajax
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response 45 of 48:
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Mar 10 14:53 UTC 1995 |
But if it's valued at $20, and somebody donated the equipment to Grex to
sell, then doesn't getting the equipment count as a $20 donation, and
selling it count as more of a nothing (i.e. if grex bought or sold anything
for $20, if it's a fair price, Grex's assets are unchanged)?
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chelsea
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response 46 of 48:
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Mar 10 15:05 UTC 1995 |
When we go to JCC and setup our table and someone hands us $20
for a fine widget, Grex is now $20 richer, but when Grex goes
to figure out what part of its income fits the critical
one third rule, that $20 won't be counted. We sold merchandise
for that money. Someone received something in return. That
money was given to get something in return. How we got the
widget doesn't matter it's why we got the $20 that counts.
And JCC makes up a significant portion of our treasury.
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chelsea
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response 47 of 48:
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Mar 10 15:12 UTC 1995 |
As to ajax's point - if the person donating the equipment to
Grex doesn't get any perks in return for the donation and we
have "valued" it appropriately, I'd think that would count
toward the one third we need. But then when we sell it
it would be added to the other two thirds in essence leaving
us without any (additonal) income to count toward the required
two thirds.
Gawd, hard to explain. I sense I'm not doing very well. But all
income counts in one of the columns. So if you pull in more of
the strings-attached type of donations you'd better be real
sure you've also pulled in more perk-free donations to
compensate.
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rcurl
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response 48 of 48:
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Mar 10 17:05 UTC 1995 |
The income from the JCC sales *does* count in the 1/3 rule - it is
"income directly related to (their) exempt function", unlike income
from investments.
There is a question of *how much* the so-called "internet perk" is
to be valued (I look upon the limit of outgoing telnet access - itself
only a small fraction of all the "internet perks" we provide without cost -
as primarily to manage the resource and not specifically to benefit
members). This must be determined, but it will certainly not be the amount
of the dues, if it isn't zero.
The letter from the IRS was a simplistic answer to a simplistic question.
It is quite clear that dues are mostly exempt donations in 501(c)3
organizations. The amount of deduction is reduced by the "value" of
a benefit received. This does not include "newsletters", but usually
appears in the form of "glossy" publications. Our equivalent is only the
subset of outgoing telnet access. Even here, there is a judgement call.
Membership fees are all donations, even if services are provided if:
"...to the extent the basic purpose for making the payment is to
provide support for the organization rather than to purchase
admissions, merchandise, services, or the use of the facilities, the
income from the payment constitutes membership fees."
This alone clearly negates the statement in the letter from the IRS.
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