Friday, October 3, 2008

Cool Hand Luke and His Feeder Corporation


"What we have here . . . is a "failya" . . . to communicate!  The guy was one of the coolest white boys I have ever seen.  I must've watched Cool Hand Luke at least 50 times and I am not even 50 years old yet (though lately I feel lmuch older than that).  So I was sad to hear the news of his death.  Tom Cruise, I think is destined to be next. Have you ever noticed the way he can act just with his face, his eyes?  That's what Newman had. 

Anyway, I've been wondering why  Newman's Own was not operated as a 501(c)(3).  As I understand, Newman's Own, Inc. donates all of its after tax profits to Newman's Own Foundation.  The question makes for a good case study.  The Company's motto is "shameless exploitation in pursuit of the common good."  Does IRC 502 prevent Newman's Own from attaining (c)(3) status?  Section 502 is but a statutory codification of the "commerciality" doctrine.  I don't suppose Newman's Own sells its products for less than market price and it probably engages in the same sort of advertising that Thousand Island salad dressing engages in.  But why should it be that an entity that gives 100% of its profits to charity be precluded from tax exempt status?  I don't buy the argument that nonprofit feeders will take over the market and thus 502 and the UBIT are necessary.  There are just too many people who want to get rich for that to happen; IRC 501(c)(3) status means the fiduciaries must discard the desire to get rich (unless of course you are a CEO of a large nonprofit).  And yet the marriage of profit principle and nonprofit ideal seems all but absolutely necessary these days, at least for those nonprofits who are playing in the big league.  Newman's Own's business acumen, its adoption of profit making practices -- and not just Newman's good looks -- made for lots and lots of charitable dollars.  The tax code, on the other hand, is so far behind the 21st Century that it sometimes is more the barrier to economic justice than the solution.  Indeed, the implementation of business principles can raise lots of charitable dollars and serve lots of people, but it is just as likely to get your exempt status yanked from under you.  Alas, the mere passage of time will require that tax exemption jurisprudence come to understand, harness and make peace with the power of the market if only for public good.  The Lion will lie down with the lamb.  Well, here is what one writer said about Newman in yesterday's Wall Street Journal:

Paul's passion for philanthropy was rooted in the strong belief that we had a great obligation as individuals and companies to give back some of the benefits that we were granted as free and prosperous citizens of the United States. He believed that corporations are granted a license to operate by their communities, and therefore have the responsibility to be good citizens in return.  In 2000, Paul addressed a group of students at a U.C. Berkeley conference on philanthropy and articulated his motivation behind giving by saying "it seems so human to hold your hand out to people less fortunate than you are." This quote embodies the generous spirit of a man committed to not only giving back, but to inspiring the world to see the value of social responsibility.  In today's economy Paul's ideals are even more salient. Business leaders should learn from his example and maintain or increase their corporate giving programs in these tough times.


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