Thursday, February 26, 2009

Thoughts On Google's Shift in Philanthropy Approach and the Private Benefit Doctrine

A few days ago we blogged on Google shifting philanthropy purposes.  According to a Wall Street Journal article, Google intends to "better leverage its technology strength" through its philanthropic efforts.  Take a look at the following cut and paste from a New York Times article on the topic:

Larry Brilliant, the executive director of, said late Monday that he would step down from managing Google’s philanthropic unit and signaled that might curtail its financing of nonprofit groups unless they are closely aligned with Google projects . . . . Megan Smith, a longtime Google executive with experience in engineering and business development, will manage, while retaining her job as vice president for new business development at Google. The announcement represents a shift in Google’s approach to philanthropy. Dr. Brilliant wrote on a Google blog that he and others at Google had been reviewing’s progress in its three years of operation.  Dr. Brilliant highlighted a handful of projects that DotOrg, as the group is known inside Google, has developed with Google engineers as models of success. They include Flu Trends, a service that uses search data to track outbreaks of the flu, and PowerMeter, a embryonic project that would allow homeowners to track their energy use. “During our review it became clear that while we have been able to support some remarkable nonprofit organizations over the past three years, our greatest impact has come when we’ve attacked problems in ways that make the most of Google’s strengths in technology and information,” Dr. Brilliant wrote.  “By aligning more closely with Google as a whole, Megan will ensure that we’re better able to build innovative, scalable technology and information solutions,” he wrote.

Here's my problem with this otherwise innocuous sounding tidbit.  I have long tthought that the amorphous "private benefit" doctrine means that a charity ought not to operate so as to intentionally benefit non-charitable third parties.  Unintended private benefit is a fact of life but intended secondary benefits ought to preclude tax exemption (that is, according to conventional wisdom).  In KJ's Fundraisers, Inc. 74 CCH Tax Ct. Mem. 669 (1997), for example, the Tax Court affirmed the revocation of tax exempt status for a nonprofit that operated so closely with its for profit organizers as to convey an impermissable private benefit on those organizations.  Put another way, the organization unnecessarily directed its secondary benefits to a select and identifiable portion of the population.  The language used to described Google's restructuring of its charitable activities suggests an intention to do the same -- that is, align its tax exempt nonprofit  activities in a manner that causes some bottom line benefits to its profit seeking endeavors.  The opening line in the linked article says that Google will indulge its charitable impulses only when they are "closely aligned with Google [profit-making] projects" and that Google intends to "align more closely with Google as a whole."  Tellingly, the new CEO of is simultaneously the "vice president for new business development at Google."

Certainly, the law ought to encourage the charitable impulses of big business -- that is, after all what social entrepreneurship is about -- and there is necessary "incidental" private benefit arising from just the name ""  But I get nervous when a charity, even one hatched in the board room of a profit maker, publicly announces that its nonprofit arm will be restructured to make sure its tax subsidized activities inevitably generate profit for its profit-seeking founders.  My conception is that the profit seekers, once they give birth to a tax exempt nonprofit, ought to step away and let the tax exempt nonprofit set its agenda without regard to the effect on its founders' private fortunes.  To mandate that operate so as to benefit seems to me to necessarily run afoul of the private benefit doctrine.  Maybe should think about that before talking more about the restructuring of

I should add, incidentally, that I'm not sure that is a 501(c)(3).  I could not find it on Guidestar.  The website describes its structure thusly:

In 2004, when Google founders Larry Page and Sergey Brin wrote to prospective shareholders about their vision for the company, they outlined a commitment to contribute significant resources, including 1% of Google's equity and profits in some form, as well as employee time, to address some of the world's most urgent problems. That commitment became is a hybrid philanthropy that uses a range of approaches to help advance solutions within our five initiatives. We operate in a traditional manner by supporting our partners’ work with targeted grants. But we can also invest in for-profit endeavors, such as efforts by companies to develop breakthrough renewable energy technologies. Our structure also allows us to lobby for policies that support our philanthropic goals. Additionally, we can tap Google’s innovative technology and, most importantly, its inspired workforce. We’ve already begun to donate and invest’s funds, and we expect to continue to do so in the future. 

Google also established the Google Foundation in 2005, which is a separate 501(c)(3) private foundation.  The Google Foundation is managed by and supports our mission and core initiatives as one of our sources of funds for grant making. As of May 2008, has committed over $85 million in grants and investments to further our five initiatives.

Even if we assume that is not a 501(c)(3), the private benefit concerns expressed above are still worth exploring.  Maybe the conclusion ought to be that private benefit should not be fatal or even relevant to tax exemption.  One would think that if private benefit is categorically inconsistent with tax exemption Congress would have said so.  Instead, as scholars know, private benefit is a sort of Frankenstein's monster hatched by a mad IRS scientist.  I've even written that its application to essentially preclude tax exempt HMO's and whole hospital joint ventures is counterproductive. If KJ's Fundraisers's Inc. caused more customers to come to the profit-seeking bar owned by the fundraisers, so what?  There was still a net charitable benefit and maybe that is all we should be concerned with.   


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I'm fairly certain that is NOT a public charity. I recall being intrigued at the time it was launched when there was press coverage that its founders decided they would have more flexibility if they did not apply for tax-exempt status.

Jennifer Chandler Hauge, Senior Counsel, Nonprofit Risk Management Center.

[These comments are my own and not those of my employer.]

Posted by: Jennifer Chandler Hauge, Esq. | Feb 27, 2009 4:50:11 AM is not a 501c3. It is just a division of Google. Separately Google has a Foundation that is a 501c3.

Posted by: Sean Stannard-Stockton | Feb 27, 2009 8:07:40 AM

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