UPDATE March 1st, 2010:
Ian Lawton resigned as a member of SBNR, L3C in January of 2010. The requirements of Mr. Lawton’s withdrawal contract does not allow SBNR, L3C to “…publicly promote services or products using the brand “SBNR.org” SBNR, L3C or any other variation of the letters “SBNR” or its existing logo for a period of twenty-four (24) months…” Additionally, among other requirements, the company was instructed to delete all content authored by Ian and Meg Lawton from the website and Facebook page.
Due to the limiting nature of Mr. Lawton’s withdrawal agreement, SBNR, L3C agreed today to sell the majority of its assets to InputH, Inc. a Colorado corporation owned by Steve Frazee, who was the Co-Founder and acting CEO of SBNR, L3C.
“The SBNR community is near and dear to my heart. I believe the growth of the global SNBR community signifies an expanded perspective in human consciousness. It is unfortunate that the original L3C entity and website can no longer service the SBNR community. However, I’m pleased that InputH, Inc. can become the new steward of the SBNR Facebook page, website content and other assets. We hope to have a new website up and running by the end of 2010 so that we might continue nurturing the worldwide population of people who identify as SBNR, spiritual but not religious.” ~Steve Frazee
Here is the original post about the launch of SBNR, L3C.
In 2008, Vermont was the first state to enact a new type of business organization called a Low-profit Limited Liability Company, or an L3C. Michigan Governor Jennifer Granholm made Michigan the second state to offer the L3C organization on January 15th, 2009. This new entity is designated as low-profit with charitable or educational goals and is considered a hybrid of a non-profit and for-profit corporate structure.
SBNR.org has selected to become an L3C to avoid many of the systemic problems that lead to charitable organizations failing. The most significant problem of most non-profits is lack of operating capital.
The term “non-profit” is often used to describe charitable organizations and specifically those that have received tax exempt status from with the IRS. Technically the concepts of non-profit, tax exempt and tax deductible are very different.A group of people can form an informal non-profit by self-organizing around a theme such as a depression support group or book club. This informal non-profit does not require any state or federal filings. If the entity grows and needs to have a bank account or desires to protect individuals from liabilities associated with the actions of the group, it may be prudent to incorporate and file articles of incorporation with the local state. Incorporated non-profits require a board of directors. If a non-profit wishes to be exempt from federal taxes, it then applies for tax-exempt status with the IRS. The most recognized type of tax exempt entity by the IRS is a 501(c)(3) which is a “charitable non-profit.” Separately the organization may also be granted tax-deductible status. Not all non-profits, or 501(c)(3) organizations are granted tax-deductible status.
The history of tax-exempt status can be traced back to the founding of the United States and the separation of church and state. It was common at that time that religious organizations were granted tax exempt status. When Congress ratified the 16th amendment in 1913 creating the US Income Tax, the historical precedent of tax exemptions to charitable organizations continued. The theory was that churches and other charitable organizations shared with the government a focus on the public good and therefore relieved the government of a burden. In 1938 the House Committee on Ways and Means stated:
“The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare.”
Today the IRS allows organizations to file for tax-exempt status under section 501(c)(3) of the tax code if they fit within one of five identified categories:
¨ have a “Charitable Purpose”; or
¨ qualify as a “Religious Group”; or
¨ be considered a “Scientific Organization”, or
¨ serve a “Literary Purpose”; or
¨ qualify as an “Educational Organization”.
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Many a church has lost their non-profit status by attempting to influence legislation and by campaigning for or against political candidates. You may have heard news of celebrity ministers getting in trouble for how they use money from their churches. This is usually a violation of the “none of its earnings may inure to any private shareholder or individual” wording. The IRS has an entire section on its website called “Compliance and Enforcement” relative to public charities 501(c)(3) and spends a lot of time and energy making sure that tax exempt status is not abused.
SBNR.org is by definition not a religious group, and it does not take positions on legislation or political candidates. But it does have a charitable purpose and is an educational organization. It could also be considered to have a literary purpose. But SBNR.org is not technically a charity because of its intention to attract capital and pay back investors. In doing so, SBNR.org will pay taxes on the limited profit it generates form your contributions. This is also why currently your contributions to SBNR.org are not tax deductible. As the L3C formation becomes more widely used, it is possible that the tax-exempt and tax-deductible status of these organizations and SBNR.org might change.
The primary benefit of an L3C is that this new corporate entity is approved to receive program related investments (PRI) from foundations. This point is crucial to understanding why SBNR.org is becoming an L3C. A foundation is an entity that is established as a nonprofit corporation or a charitable trust, with a principal purpose of making grants to unrelated organizations or institutions or to individuals for scientific, educational, cultural, religious, or other charitable purposes. Foundations are required to pay out annually at least 5% of their assets as grants to nonprofits. PRIs are loans, loan guarantees, equity purchases or other investments that will further the foundation’s philanthropic purposes. The L3C formation enables foundations to make PRI investments in ventures and have those funds count toward their required 5% payouts. As an L3C, SBNR.org can receive resources from foundations to serve the SBNR community. In return, the foundation has the potential to get its money back, potentially with a modest return.
To be an L3C SBNR.org must satisfy the following three requirements:
1. The Company significantly furthers the accomplishment of one or more charitable or educational purposes.
2. No significant purpose of the company is the production of income or the appreciation of property.
3. No purpose of the company is to accomplish one or more political or legislative purposes
What does this all mean? SBNR.org can avoid one of the major afflictions of most non-profits: the lack of capital. As an L3C, SBNR.org can attract capital from foundations that are aligned with our purpose and use that money to build the technology and organization needed to serve you, the SBNR community, and bring your vision to life. As individual contributions to SBNR increase, the foundation can be paid back so that their money can then be used to fund another philanthropic venture. Everyone wins!
We’ll keep you updated with news about our progress towards becoming an L3C and which foundations that are aligned with our mission. If you know of a foundation that might be aligned with SBNR.org please introduce us to them. You can also contact me directly at the email address below.
This is an exciting time for the SBNR community. I am grateful for this opportunity to serve you, your family, your community and our world.