register Gittip as a charity #101
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This costs lots of money and takes a long time. Doesn't mean it's not worth it, just sayin'. |
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I completed the process recently. Costs about $800. The paperwork took about 2 days. Then, of course, had to wait about 6 months for a response. On Jul 5, 2012, at 10:39 AM, Steve Klabnik wrote:
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The view from Germany (via @rodneyrehm on #83):
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+1 from @freakboy3742 (via twitter) |
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For the record; the situation in Australia is similar to that in Germany. In order to gain tax deductible status, you need to be a company or incorporated association, who is registered as a charity organisation in each state/territory in which they plan to solicit donations (that's a total of 8 jurisdictions in AU). I have no idea how online donations fit into this model. The catch will be whether the activities of an open source organisation qualify as "charitable acts". Exact wording varies from state to state, but the general gist is that the organisation needs to be in the aid of "relief of financial hardship, advancement of education, advancement of religion, or charitable purposes of benefit to the community". There are usually also provisions for "philanthropic causes". Here's some summary info for registering in New South Wales (the most populous Australian state) |
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While it could be important long term to get tax deductible status in other countries, focusing on the U.S./Canada first makes the most sense. I'll bet the initial application may not be that difficult to get approved, but I'll bet that--if Gittip is as successful as it should be--the wording of that initial application will come into question… so it needs to be done excellently. The IRS claims that a Charitable Org. can gain 501c3 status if they exist for one of the exempt purposes: The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. If we include in Gittip that people confirm their purposes as Charitable (and not, say, lobbying for a political candidate), then it seems like it could work. If it were set up as a Private Foundation--albeit a somewhat chaotic one--it just has to have "provisions to assure that expenditures further exempt purposes" Our provision, of course, could be the intense scrutiny of crowd-sourcing. Maybe there could be a terms of use, or even a more visible Notice that reminds users to only give money to exempt/charitable purposes. There are two main issues with this:
It's definitely trickier operating this way, rather than just as a Pass-Through organization, but it is definitely worth pursuing so that money tipped on Gittip is not double-taxed. On Jul 12, 2012, at 8:02 PM, Chad Whitacre wrote:
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The open company model is designed to walk a fine line between many other existing organizational models. As part of that, I don't see Gittip itself being registered as a charity. There are enough non-profity parts of Gittip, and being a registered charity would swing the balance too far in that direction. |
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Reopening. At PyCon, @hcarrinski made the point that even though Gittip operates as it does, as long as it's not a registered non-profit, there is the possibility that it could be sold at some point in the future. @teamcoltra raises the same question in IRC. We should register Gittip, LLC as a non-profit to preclude this possibility. |
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@teamcoltra: "Why not just establish a corporate bylaw which prevents the selling of gittip" |
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If you play it right you could get 501c3 status and make gifts tax Damien Michael Nichols Sent from the supercomputer in my pocket. Don't take the typos personally.
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"it could be sold" requires a seller. Chad, or some future board of directors, would have to participate in a sale (baring bankruptcy, but liquidation via bankruptcy is a slow and public process.). I don't see how being a non-profit is a fundamental change related to potential acquisition. A nonprofit can merge with another nonprofit. A nonprofit can choose to stop being a nonprofit. On occasion, a nonprofit will be told by some regulator that they are no longer a nonprofit. The primary defense against a change of control for Gittip is in the human leadership of Gittip. Bits of legal language, such as a corporate bylaw or being a nonprofit might help a little, but real defense is in the people. |
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-----BEGIN PGP SIGNED MESSAGE----- You /could/ deduct them, you know, if you were okay with tax fraud. If DamosDaze wrote:
iQEcBAEBCgAGBQJRlll2AAoJEES9cOv0A0l0jXUH/3mEp9vMkw0h4I1VFY7mxNCP |
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You're right Travis. Not sure what I was thinking there. Damien Michael Nichols Sent from the supercomputer in my pocket. Don't take the typos personally.
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I'm against this. The "protection" argument isn't that strong, for the reasons @bruceadams cites. I don't want Gittip to be a registered charity, because I have a generally negative view of tax-deductibility. Why don't you want to pay your taxes? If you don't want to pay your taxes then fix your government. Tax deductibility is an accounting game, and I'd rather not play accounting games if we can help it. |
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An argument for tax deductibility is that a group of individuals can do a better job than the state. An example would be finding a cure for a really rare disease, the state probably don't care about it that much since it only affect a very few people, but lot of individuals might want to "invest" in that cause because it seems important to them. Wikimedia is a non profit, I don't have any statistics to back it up, but the tax deductibility most probably helped in the early days to leverage the found that made the project possible. I do donate to some charities, not that much for the tax deduction, but because their projects matter to me. I find the tax deduction to be a guarantee that the targeted charity is not a scam and a good way to have some kind of influence in my country (since I effectively direct some of the government money to some special causes, much like if I was voting for them). Anyway, having a way to register charity in gittip and benefit from tax deductibility would be nice, but that is issue #249. |
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The question is: Is Gittip itself taxable? |
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@rummik If Gittip has any form of profits (i.e. money left over after paying all the bills) or starts selling stuff, it is taxable. Either corporate income tax and/or VAT at the very least. The only question would be where? 😄 |
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I agree that @bruceadams points are compelling. I asked Chad this question in the hope that the relevant issues could be fleshed out in a conversation such as this one. Thank you. |
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This was also covered in the discussion between @whit537 and @isaacs here #5 (comment) I'm a huge +1 for this. Gittip is meant to earn their money from donations to Gittip alone, not via commissions, interest, or ulterior motives. If individuals want to get rich, then that should be via donations to their individual gittips. Registering as a non-profit, or charity, helps to ensure this is the case. |
That seems like a very weak argument, one that @hashar counters very well. Just because someone was born into a nation, doesn't mean they believe in it. Instead they should be able to vote in what they believe in with their choices and their money, not via what everyone else that happens to be around them thinks. Also, as individuals receiving payouts from gittip, we end up paying tax on those anyway. Having a double tax, one by gittip, then one on what we receive, seems silly and wasteful.
Sure it may be, but when that accounting game costs you a $100,000 to save you a $1,000,000 it is a worthwhile investment. Gittip will soon reach that place, and it needs to play as a big player, and grow accordingly, anything else would just be wasteful. |
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Thinking about this some more. It actually seems to make the most sense to register Gittip as a bank. It truly makes a lot of sense:
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Reticketing from #83.
In the US this is 501(c)(3) non-profit status.
In Germany ... ?
In the UK ... ?
Elsewhere ... ?
@timothyfcook: At a later point, a consideration is whether or not Gittip could function as a 501c3 that validates all tips as tax-deductible donations. Have you thought about this at all? It might be tricky/impossible, but worth thinking about.
@whit537: Gifts through Gittip are probably tax-free already (see #96). My hunch is that it would be much harder to get 501(c)(3) status for Gittip itself.
@timothyfcook: Yeah, I don't think it will be an issue for a long time (if ever) that people would be taxed on their git tips. It is possible, however, that tippers could be able to deduct their gifts (donations) from their taxable earnings. At a certain point if some generous folks are tipping $100/month, they might be interested in writing those tips off of their taxes.
I don't think its totally unreasonable to make this happen. The MacArthur foundation's genius grants are funded by money that was seen as tax-deductible donations... yours is smaller amounts in larger quantities.
As far as non-profit status is concerned:
People "donate" money to gittip and, with their denote a recipient for a micro-grant who is "Making the world better".
Gittip accepts the money and packages it into bundled micro-grants for these do-gooders who are "making the world better".
The do-gooders receive the tips as a "micro-grant" of bundled tips and the tippers receive a tax receipt saying they "donated" $89.18 in 2012 to a number of micro-grant funds for everyday geniuses and do-gooders.
It seems like Gittip should be able to function like a crowd-sourced Foundation that accepts constant streams of both funding for micro-grants and votes on who should receive micro-grants.
Exploring the non-profit/tax-exempt status is not something for the early stages, but could be a consideration for the long-term. Having recently gotten this status myself (for @saxifrageschool) I think gittip could qualify.
@whit537: Do MacArthur fellows have to pay tax on their grants as income? These are all questions for an accountant, of course.
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