Debate: Changing Tax Statuses To Achieve Social Good
Last week nonprofit Jumo was bought by for-profit GOOD. This week nonprofit CouchSurfing.org became a B Corporation. While I believe that there are a variety of ways to work for social change, what are the implications of changing tax statuses in pursuit of capital? Here are some interesting perspectives:
“The Jumo example doesn’t appear to be too common…yet. But I would hate to see the 501(c)(3) status come to be seen as a kind of quick-and-easy way to get free startup capital en route to flipping one’s organization into a for-profit enterprise, social or otherwise. I’m not saying this was Jumo’s intention, but others could choose to interpret it that way and see it as an interesting strategy to emulate.”
“Look, I don’t know if CouchSurfing’s “social mission” should qualify as a tax exempt nonprofit. But I know that nonprofits are starved for growth capital. The true distinction between a socially driven business and a profit driven business isn’t about their tax code election. The distinction is about the collective decisions the organization makes over time and who those decisions are intended to serve – public or private benefit.”
I have some initial questions/thoughts:
- Will we begin a larger conversation on what constitutes as a “social mission?” The truth is that anything can be construed into a social good or having a social purpose (for example, one of the core goals for the nonprofit National Cattlemen’s Beef Association is to “increase consumer demand for beef”). With more people wanting to enter the social change conversation, should we try to have a more clear definition of what social change actually means?
- Does it make sense to shift structures depending on your plans for growth? While some folks like to dismiss the differences between for profit and nonprofit as mere tax lingo, the difference in how an organization can use profits affects what funds are available to them, how they find funds, and how they use funds to implement their mission. Additionally, an organization’s need for capital may change depending on their stage in organizational growth. While I’m not advocating for being able to hop around until you find a tax status that fits, I’m curious as to whether planning to switch is a strategy worth exploring at all.
- Does the public actually care what status we have? Each status has its own connotations, for example, being a nonprofit often assures people that your donations are being used for good (even though that may not always be the case and I certainly think this view is shifting with the millennial generation). However, if the lines become blurred, will this affect people’s confidence in whether organizations are committed to working on social change? Or will this encourage folks to have a broader view on social change and how they can/should be involved?
I’d love to get your input on this. Share your thoughts below.