Is it time to ditch the 501(c)3? - Generocity Philly

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Jun. 13, 2016 12:55 pm

Is it time to ditch the 501(c)3?

A nonprofit tax status is becoming less and less necessary to enact social good, argues columnist Tivoni Devor.

Lolly Gavin raised almost $14,000 on GoFundMe for The Dignity Project — without the help of a 501(c)3.

(Screenshot via GoFundMe)

Tivoni Devor’s “Getting Good Done” column focuses on new models of enacting impact.


There’s less and less of a reason to get your own 501(c)3.

The tactical advantages of being an independent 501(c)3 are eroding, and the value of starting your own nonprofit is weakening in the eyes of emerging generation of social entrepreneurs.

Here are the results of a study about why people aged 18 to 39 don’t get their driver’s licenses:

driver's license study

This mirrors why young social entrepreneurs are not getting their own 501c3s:

  • It takes too much time to get your own 501(c)3.
  • The administrative and compliance costs of maintaining your own 501(c)3 are too high (and underfunded).
  • It’s now easier than ever to use someone else’s 501(c)3.

It’s now about getting what you want to do done as with as little red tape as possible and not about creating an industrial-era corporate infrastructure with all its limitations. Equally, as much as young social entrepreneurs don’t feel the need to get their own 501(c)3 status, young donors care little about getting a tax deduction on their giving.

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For example, Philadelphia resident Lolly Galvin put up a website and a GoFundMe page for a 12-city tour called The Dignity Project and raised almost $14,000 in small donations to provide supplies and support to homeless people. She raised all that without a 501(c)3. In fact, GoFundMe has helped people raise over $310M in mostly non-tax-deductible dollars.

Foundations are also starting to value outcomes over corporate structure, and the IRS is supporting this flexibility. There are now 19 examples of allowable program-related investments that foundations can make to for-profit businesses. This offers foundations much more flexibility for where they put their money — and it also reduces the monopoly nonprofits have on accessing this money. As more foundations add PRIs to their financial mix, nonprofits will be competing more with for-profits which are often better capitalized and can sell equity to sustain losses for years, which nonprofits cannot.

Fiscal sponsorship has not only hit the mainstream, but in Philadelphia, it’s practically booming compared to other cities of comparable size. There are several organizations in Philly that provide a professional level of fiscal sponsorship — I work for one — where for a fee, you can use their 501(c)3 and get an array of back office services. Then there are dozens of nonprofits that also do this on the side, for a little revenue or a favor. Philly is a rare city where you can actually shop for fiscal sponsorship.

The truth is that more and more social impact and social entrepreneurship is blending and blurring all over both sides of the nonprofit and for-profit line, and the IRS will be the last to catch up. As a younger, more agile, more pro-disruption generation comes in and takes over this space, we will see not only less formal 501c3s being created, we will see completely new ways to create social impact by any means necessary.

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