[Imc-finance] Re: FYI: [P2PJ] K5 fundraising / 501(c)(3)

[Sascha Meinrath]

hi shane (et al.),

a couple quick comments.

> FYI: I just read this post by rusty at kuro5hin.org on the peer to
> peer journalism list at infoanarchy.org re: their fundraising and
> legal status and figured indy kidz would be interested....
>
> I think there would be merit in taking a hard look at the co-op model
> as an alternative for Indymedia as it mandates self organization,
> federation, and mutual aid.
>
> in solidarity,
> shane

the urbana-champaign IMC is a 501(c)(3)  corporation under the
"educational and charitable" category.  when we drew up our by-laws, we
chose to utilize a cooperative model.  so, in many ways, we are engaged in
exactly the type of organizational model that you're suggesting.

> >>  It is... interesting, certainly.  I question whether Kuro5hin can
> >>  legitimately claim tax-exempt status, as they do not appear to fit very
> >>  well into any of the categories set forth under the law: charitable,
> >>  religious, educational, scientific, literary, testing for public safety,
> >>  or prevention of cruelty to children or animals.  (That's assuming
> >>  501(c)(3); 501(c)(7) is actually closest to Kuro5hin, but it is a form
> >>  that Rusty expressly rejects.  :)

the "charitable and educational" category covers a _huge_ swath, and is
probably the area that a media-production organization would most easily
fall under (assuming that people read/see/listen to the media produced and
learn something).

> >My best guess right now is we'd be categorized under "educational". That
> >seems to cover purposes like running discussions and debates. "Literary"
> >seems to be very specifically geared toward print publishing, so that's
> >probably not going to work.

i would agree -- only go for literary if you're only planning to do
literary endeavors...

> >>  At a minimum whatever corporate structure currently exists will have to
> >>  be dissolved and reformed.  There are a not-insignificant number of hoops
> >>  to jump through.  If the organization pays Rusty a salary (or otherwise
> >>  compensates him) above market rates, it jeopardizes its status.  (In
> >>  fact, it appears that if Rusty receives any money whatsoever from the
> >>  organization, there may be problems - consult a tax lawyer.)

ammending a corporate structure is actually fairly easy -- one just has to
file an "ammended by-laws" form (or whatever it is called in your state).
also, "market rates" are kind of flaky -- don't forget that heads of
non-profits like the red cross and united way are often pulling in
$500,000 or more.  it is extremely rare that payscales would cause a
problem.  as a non-profit, there is absolutely no problem with paying
people, you just need to follow the employment laws (as with any other
corporation -- though if your a religious organization, you don't have to
pay certain taxes and the like, but that's another area entirely ;).

it is also often a good idea that paid staff are _not_ on the board of
directors if your board is in charge of the staff -- it puts people into a
really bad bind if problems arise.  this is not to say that paid staff
cannot be active participants with the board, but rather that it can
often lead to serious conflicts (and conflicts of interest) and often
doesn't look too good to outside funders.  better to create a consultancy
or advisory position to the board for paid staff that are intergral to the
organization.

> >>  All political articles on K5 jeopardize its status, as exempt
> >>  organizations are totally forbidden from engaging in advocacy over public
> >>  elections and are heavily restricted from advocating for or against
> >>  particular legislation.
> >>
> >>  So the next time a story hits the queue that says, "Vote against Senator
> >>  X, the Disney Senator", what will the choice be:
> >>
> >>  a) let it go and risk losing tax-exempt status
> >>  b) delete it by executive fiat
> >
> >This is currently my biggest question mark in the whole process. It's
> >not worth becoming a 501(c)(3) if it means we have to ban certain
> >articles or comments. I spoke to the director of e-thepeople.org, a
> >nonprofit that promotes democracy and political engagement, and he had
> >run into the same question founding his organization. They are currently
> >operating under the assumption that the "no advocacy" rule isn't
> >relevant because they are not, as an organization, sponsoring a
> >particular viewpoint or interfering in free debate. That is, providing a
> >place for people to speak freely is not the same as underwriting or
> >advocating whatever it is they say.

i'm not familiar with the inner workings of K5, but there is absolutely no
problem with carrying information and articles that are political in
nature.  the main point to keep in mind is whether the organization is
itself advocating for an individual politician or political legislation
(general positions are o.k.)...  the e-thepeople.org director is correct
that as long as the organization itself does not officially sponsor or
advocate, then you should be o.k.  there are also loop-holes that allow
for modest direct advocacy, but since the IMCs don't do that, i'm not as
familiar with the laws and paperwork involved.  most importantly, as long
as the organization itself isn't involved in lobbying, campaigning,
endorsing, etc. you shouldn't run into any problems.

> >We've engaged a very experienced nonprofit lawyer, and this is the major
> >question I have for her at this point. If that seems like a reasonable
> >stance, and is not contradicted by any existing case law, then we will
> >probably proceed under the same assumption. It seems that, as usual in
> >the developing area of the net, the law is not particularly clear or
> >well-established. My best analogy so far is that operating K5 is not
> >like publishing pamphlets, but more like maintaining a public
> >meeting-hall. If visitors to our meeting hall advocated political
> >action, would we have to give them the boot, or merely ensure that there
> >is equal opportunity for speakers with any viewpoint? It seems the
> >latter makes sense, but of course we'll be finding out what case law
> >says.

again, i'm not familiar with how the site is run, but you shouldn't have
to boot people because they engage in political speech.  in fact, there
have been a couple rulings of late that have placed on-line journalism in
the same protected area as more traditional forms -- so you're probably
fairly well covered by existing freedom of press precedents.  again, the
main distinction is whether the non-profit organization itself is
advocating for specific politicians or organizations -- individual
participants can pretty much do whatever they choose (as long as they are
not representing the organization).

> >>  Another note: donations aren't donations when the donator gets a benefit
> >>  in return.  So the text ads, or t-shirts, or whatever, would not be
> >>  tax-deductible for the donator.
> >>
> >>  Further, as a minor note: I question whether most contributors to K5
> >>  itemize their deductions.  If they do not, tax-exempt status provides no
> >>  benefits to them.

correct, one has to itemize donations (and be able to provide
documentation if you get audited).  few people do this, but for larger
donors who do itemize deductions, or for folks that itemize their
deductions anyway, it is highly useful.

> >There's a large gray area here. Donations are tax deductible even if the
> >donor receives a "thank you gift." See public television and NPR
> >fundraising. It seems that the difference is largely a matter of
> >phrasing, and possibly also of cost. That is, if you have to donate $120
> >to get the t-shirt gift, can anyone make a reasonable case that you're
> >actually buying a t-shirt? That would be an awfully expensive t-shirt.

legally speaking, if a donor gets a premium (like a t-shirt), then they
can only deduct the amount of their donation above and beyond the fair
market value of the shirt.  for example, if you gave $100 to your local
community radio station (which i encourage everyone to do ;) and they gave
you a t-shirt (say it was worth $10) as a thank you present, then you
could only claim a $90 donation on your taxes...

> >>  So in summary: it will be difficult (I'm not quite willing to say
> >>  impossible, but I think it unlikely) to be recognized as a tax-exempt
> >>  organization, and I see only a minor benefit to the community for doing
> >>  so.
> >>
> >
> >The benefits to the community are:
> >
> >* Assurance of democratic operation at the organizational level. If you
> >don't like decisions that the Board makes, you can vote the bums out.
> >
> >* Assurance that the site can not be sold to some company who will wreck
> >everything that made it valuable.
> >
> >* Assurance that I do not personally hold the fate of K5 in my clammy
> >little hands. Web community owners go broke, get burned out, find other
> >projects, etc. I'm not going to run K5 for the rest of my life. If it's
> >to be a real community, it should have the power to determine its own
> >future, independent of me personally.
> >
> >Tax exemption has little to do with anything, really. In fact, if the
> >free speech issues above turn out to be a serious problem, becoming a
> >co-op is a backup choice. With properly written bylaws, this would
> >provide all of the organizational benefits above, without any red tape
> >or government hassle. For a few reasons, it's my second choice, but if
> >necessary it is what we'll do.
> >
> >>  Or to put it another way: I've seen many people/organizations state
> >>  "We're going to become a non-profit".  To date, none of them have
> >>  actually done so.
> >>
> >
> >I've seen a lot of people start web communities, too, and most of them
> >fail. That doesn't mean a thing. I'm serious about this. but as I've
> >said on the site, come back in a few months and judge my actions for
> >themselves.

fiscal sponsorship is also a very good idea if you want to try out
non-profit-dom for a bit before taking the plunge.  non-profit status has
been incredibly useful for the urbana-champaign IMC, but getting it is
incredibly time-consuming and not inexpensive.

in solidarity,

--sascha meinrath
urbana-champaign IMC