18 Jul
2013
18 Jul
'13
12:23 p.m.
I think this is really helpful. And I think it's clear that there are
different advantages to different tax structures - as people have been
articulating quite well already.
I've suggested before that we look more seriously into 501(c)(7)
because of the relative advantages regarding tax emption, more like a
public-facing community space, and more consistent with the kind of
governance we've chosen. I don't know how long it takes to get that
process going, but would be happy to look into it.
A significant disadvantage of 501(c)(3) most applicable to our
predicament is that it would require naming a Board of Directors. How
would we go about deciding that? Who would they be?
People have then replied - well then we can put whoever on there and
it doesn't really matter. Well then we're in a much worse spot than
we're currently in. Those people are way more on the hook both in
terms of financial liability and insurance liability, and therefore
credibly in charge.
The situation now, as I understand it, is even less exposed than Bill
mentions below. The bank account is not under anyone's name. it is
under Sudo Room. In order to give us this account, without having a
federal tax ID (& thus choose corporate structure), the bank wanted to
have someone or some people - connected to the account only by way of
having another, separate account in the bank under their own name.
Part of what was convincing to the bank was the fact that we had
detailed in the Articles of Association already the priority of how
funds will be reinvested and a commitment to accounting transparency.
This is separate from anything related on the insurance end, because
that has to do with the entity renting the space, not the bank account
anyhow.
It seems to me that in order to reap the benefits of the different
advantages of the different structures, we go ahead and pursue all of
them. Sudo Room should contain, or be connected to a 501(c)(3) to
receive charitable donations for that kind of work. An LLC enables
those thinking about the SEC provisions, recently announced to go into
effect in ~60 days - to organize themselves in a way that allows them
to offer equity in future profits to the crowdfunding public. All of
the interest in local politics and clear public policy purpose of Sudo
Room-related entities like Oakland Wiki, Hack the Budget, Code for
America, etc. - suggests that a Sudo PAC organized as a 501(c)(4)
would make a lot of sense for some of the projects that are being
hatched at Sudo Room. Seem like some clusters of people would be best
organized as an LLP (Limited Liability Partnership).
That's why it has seemed to me like we should keep this core kernel
agnostic on tax structure, and narrow in its purpose. Early stage
innovation projects and ideas have many different ways in which they
could be optimally funded. If we are to repurpose these structures to
to allow for the kind of exchange of ideas and structural commitment
to the maintenance of diversity, then just doing whatever is fastest
or easiest or what everyone else does can't be enough.
my 2 bitcoins.
On Jul 18, 2013, at 11:29 AM, Rachel McConnell 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-501c3-30…
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
http://lists.sudoroom.org/listinfo/sudo-discuss
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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(a)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(a)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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