Another disadvantage of 501(c)(3) status are the limitations regarding politically-oriented activity, given our interest in local politics:

- There is an absolute prohibition on any 501(c)(3) to participate and/or intervene in any political campaign on behalf of or against candidates for public office.
- There is a cap in what is broadly defined as lobbying - so that at most 20% of exempt purpose expenditures, decreasing to 5% as the organization's budget grows larger. 26 USC §4911(c)(2) - http://www.law.cornell.edu/uscode/text/26/4911

Also, to address the relevance of potential profit distribution to members of a project. The idea and the spirit of how we've been collaborating - from my understanding - is distinctly that it is not about charity. It's about self-empowerment and access to knowledge. There are a few reasons why I think this is not an insignificant point at this stage.

First, the new SEC Crowd-funding provisions would allow entities that meet the criteria of being a crowd-funding platform - to distribute public shares in a product/service. This isn't about a few people pocketing hacker-space donations. It's a radically new opening for crowd-sourced initiatives to offer something substantial to moderate sized non-Wall St. investors in independent innovation that is locally oriented rather than another free t-shirt or a mention in the credits. Equity, also not incidentally, will likely have a strong positive impact in raising the low completion rate of current crowd-funding provider projects.

Second, not everyone can be expected to have enough excess time and resources to direct their efforts towards something that doesn't generate some sort of income or salary. If we are in fact trying to relate to our local community in Oakland - ought to be the presumption in order to attract genuine interest. The Telecentre model more prevalent outside the US in places in Africa, South America, and South-East Asia, for example, are distinguishable from the cybercafe, co-working space, or (some) hackerspaces - in hacking at problems assuming a relative scarcity of resources rather than over-abundance.

Finally, the federated model we've been discussing is intended to enable the flexibility of related projects to fund themselves. We've already come across this - should we have to wait for all of Sudo Room consensus (whatever that means) in order to channel funds towards something? The existence of a 501(c)(3) through which all funds flow through would likely predetermine how initiatives will be funded and projects organized as a result.

On Thu, Jul 18, 2013 at 12:22 PM, David Rorex <drorex@gmail.com> wrote:

It took AMT ~2 years to fill out the forms, and then ~9.5 months from the filing to hear back from the IRS (and we got approved right away with no additional followup required. Noisebridge required additional followup/clarifications on their application).

On Thu, Jul 18, 2013 at 11:29 AM, Rachel McConnell <rachel@xtreme.com> wrote:

I'm a founding member of both Noisebridge and Ace Monster Toys, and have been through the incorporation and 501(c)(3) process with both. I just want to clarify that incorporation and federal tax exemption are two separate designations. Incorporation, either as an LLC or a full corporation, is something you do at the state level, so the state can identify, tax, and regulate you. The 501(c)(3) is an IRS designation, which gives you the ability to accept tax deductible donations. You do have to be incorporated in order to apply for 501(c)(3) status. I don't think an LLC is eligible as it's a for-profit type of incorporation; I think you have to be a California Non-Profit Corporation before the IRS will grant 501(c)(3) status, but this should be verified.

Also, once incorporated, the 501(c)(3) can be applied for immediately. It did take both Noisebridge and Ace longer than 10 months to receive approval. At Noisebridge it was because the IRS was apparently baffled at the concept of a hackerspace and had a lot of follow-on questions. I think Ace just took a while to file, but also it took over a year for the IRS to respond. It's an annoying, tedious, and time-consuming process but not really that hard.

Cheers,
Rachel McConnell

On 7/18/13 11:07 AM, mark burdett wrote:

I'd say talk to a lawyer about this first, because the typical 501(c)3
is a corporation - the usual route is incorporating and then awaiting
tax exempt status for the corporation.

(On the other hand, an LLC could make sense if sudoroom wants to keep
around a non-501(c)3 entity that doesn't have all the restrictions of a
tax exempt org... I know some enterprising (literally) artists who have
created both LLCs and non-profit orgs so they can get grants and also
operate as a business....)

See also
http://www.nolo.com/legal-encyclopedia/nonprofit-tax-exempt-status-501c3-30124.html

This section requires that you attach a copy of your articles of
incorporation and your bylaws
<http://www.nolo.com/legal-encyclopedia/nonprofit-formation-documents-articles-incorporation-bylaws-minutes-30311.html> to

the application form. (Most nonprofits seeking 501(c)(3) status are
corporations. If your entity is an LLC
<http://www.nolo.com/legal-encyclopedia/limited-liability-company>,
unincorporated association
<http://www.nolo.com/legal-encyclopedia/five-reasons-incorporate-nonprofit-association-30266.html>,

or nonprofit trust, you should seek the help of a lawyer
<http://www.nolo.com/lawyers> with experience in nonprofit tax law to

complete your Form 1023 application.)

--mark B.

On Thu, Jul 18, 2013 at 10:50 AM, Marina Kukso <marina.kukso@gmail.com
<mailto:marina.kukso@gmail.com>> wrote:

thanks bill, very helpful!

what are the advantages to filing as an LLC?

also, i think that jenny recently had a call with james from the
school factory - jenny, could you possibly share some of what you
both discussed?

- marina

On Thu, Jul 18, 2013 at 10:43 AM, William Budington
<bill@inputoutput.io <mailto:bill@inputoutput.io>> wrote:

Hey all,

I talked to Danny O'Brien (Noisebridge's financial functionary)
yesterday about the sudoroom legal status. I know this has been an
ongoing discussion so I'm going to summarize the options we've
already
looked into and present the new information Danny has brought to my
attention.

*Why do we need a legal status?*
Over the past few months we've found various challenges to our
normal
operations since we don't have a legal status. We aren't able
to sign
up for services like Stripe without having a federal tax id. In
addition, since we are formally under one person's name, he is
liable if
anything happens at sudoroom. Also, we aren't able to sign up
for most
banks -- only the Community Bank of the Bay will actually give
us a bank
account with our status as a DBA. And as we've seen, Community
Bank of
the Bay is not the most web-savvy organization, and so it's hard
for us
to actually check our balances.

*What we've looked at*
Our eventual goal has been to get 501(c)3 status for sudoroom.
This is
a status that would allow us to accept tax-deductible donations
and be
incorporated formally as a nonprofit. A lot of Hacker Spaces go
this
route, and it seems like a reasonable long-term goal. One of the
problems we've been warned of is that it takes a long time to
actually
be granted 501(c)3 status - upwards of 2 years, which can as I
understand be expedited to 10 months.

Because of this delay, we've looked into some other options --
namely
being umbrella'd under another organization's 501(c)3 status. This
would involve 10% of our revenue going to said umbrella
organization to
cover costs of the books. I've been in contact with Danny at
Noisebridge and Jenny has been in contact with (Steve?) at the
School
Factory and discussing if this is a possibility. It is
certainly one
way to go, but as for Noisebridge they've only umbrella'd
Noisetor, and
they didn't need a separate account for that.

*What I've learned recently*
Danny mentioned that his partner is looking into nonprofit
status for a
new feminist hacker space in SF, and has investigated these
options as
well as others. In order to have a certain degree of autonomy,
it is
probably in our interests to actually not go the umbrella route and
pursue separate legal status altogether. He also mentioned that
there's
no reason why we couldn't incorporate as an LLC or other corporate
status before pursuing 501c3 status, and that even if it takes a
number
of years to be granted non-profit status we can transition from
an LLC
without much of a problem. There's no real disadvantage to
having LLC
status in the meantime, as I understand it. The main advantage of
nonprofit status is tax deduction, but that is usually superseded on
most peoples taxes by the standard deduction. The main place
where it
does make a difference is when employers do matching donations
for their
employees, then it can make a difference.

*The plan*
It makes sense to me to pursue the options that would resolve our
short-term problems without impeding the path to our long-term
goals.
It seems to me reasonable as a short-term goal to register as an LLC
(Jenny tells me this can be done in an afternoon and with $50 with a
drive to Sacramento), and as a longer term goal actually pursuing
nonprofit, 501c3 status.

*Disclaimer*
There may be caveats to this plan and I'm not a lawyer.

Bill

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