Friday, September 2, 2011

UPDATE: Nonprofit That Converted to "B Corp" Status Had Its 501(c)(3) Application Apparently Rejected by IRS

I previously blogged about the reported decision of CouchSurfing.org to because a "B" or "Benefit" corporation in order to receive significant investment funds.  It just came to my attention through the ARNOVA list-serv that CouchSurfing.org had previously sought unsuccessfully to receive recognition from the IRS as a tax-exempt section 501(c)(3) charitable organization.  Here is the explanation from the organization's website:

"When we started CouchSurfing, being a non-profit was the best option that we could find to make sure that we achieved our vision. But achieving the top status for American non-profits — known as 501c(3) status — has turned out to be very difficult. Although we’ve operated as a non-profit financially, our mission isn't traditional enough for the government to grant us this type of status.

So we need to make a change. After 5 years of trying to go in the direction of 501c(3), we've finally understood that this isn't going to work for us. We need to find another structure in order to continue our progress towards a world where anyone can explore and connect."

The website also provides a video with two of the organization's founders explaining this history and the decision to pursue B Corp status instead.

LHM

http://lawprofessors.typepad.com/nonprofit/2011/09/update-nonprofit-that-converted-to-b-corp-status-had-its-501c3-application-apparently-rejected-by-ir.html

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Comments

Hi,

Isn't it illegal for a non-profit organisation to turn itself into a for-profit corporation given the fact that (1) its members donated to the organisation, (2) its members volunteered countless hours in order to code its website, (3) all this was done in the name of being a non-profit organisation.

Isn't illegal to distribute the assets of a non-profit organisation to individuals at the top of the organisation thereby making them shareholders?

I would like some expert advice here. There are thousands of CouchSurfing members who are really angry and feel cheated that their money and time was spent to benefit the pockets of a few directors of the organisation.

Please email me with a response.

Thanks
jared

Posted by: Jared | Sep 2, 2011 3:25:40 PM

the rejection letter is almost certainly PLR 201125045, and it should be noted that among the grounds for rejection was that the dissolution clause permitted capital contributions to be returned to members.

Posted by: r. willis | Sep 5, 2011 4:46:50 PM

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