To Non-Profit or To Not Non-Profit, That Is The Question

[BlueEco]

I have been an environmental activist for about 10 years now.  I just graduated law school and want to continue doing pro bono environmental legal work.  My main site is http://www.Landfill7.com and concerns the cleanup of a closed army base near Chicago near where I live.  I am litigating this in federal court now.

I thought about forming a new environmental organization that watches over the regulators as they watch over the regulated polluters and litigating lapses in enforcement.  The reason I am thinking about forming this new organization is because I want to be able to solicit donations so I can run my office and pay myself a meager salary for the work I do.  There are so many foundations who are sitting on million of dollars and have stated goals of helping organizations doing the kind of work I do for free that I thought I should ask for some.  They require, however, that the organization be a 501(c)(3) non-profit.

But when I look into the requirements for forming and maintaining a non-profit it seems like more work than it is worth for a small grass roots organization like I envision.

My question is if I can simply solicit donations from people without being a non-profit?  The donors would understand that their contribution is not tax deductible.  Maybe that would turn off these foundations but I bet I could get micro-donations in the $100 to $500 range without people caring if they could write it off.  Am I missing any rules on solicitations that would not allow me to do this without forming a charitable organization? 

What I envision is an organization that would take the contributions and disperse them for office expenses, litigation costs, and some salary for me.  So whatever income was generated in the form of donations would be spent and written off as costs so that there would not be taxable profit to the organization.  I can see that there might be an issue of a for profit entity not trying to make a profit so that the IRS might not like it.  But on the other hand, I will be a lawyer and running a law office anyways so these donations might not really be much different than people paying me a fee as an attorney to become my client representing their public interests.  In that case I would certainly be justified in writing off my office expenses, litigation costs, and salary as expenses against income.

So is this a charitable legal question, an accounting question, or both?  And why would a lawyer as a bulletin board like this for legal advice?  Because they don't teach you everything in law school and you guys have been there and done that and can teach a newby something here.

Thanks,

Steven Pollack
http://www.BlueEco.org

[dmcole]

But when I look into the requirements for forming and maintaining a non-profit it seems like more work than it is worth for a small grass roots organization like I envision.

Been there, done that, have the proverbial T-shirt.

My question is if I can simply solicit donations from people without being a non-profit?  The donors would understand that their contribution is not tax deductible.  Maybe that would turn off these foundations but I bet I could get micro-donations in the $100 to $500 range without people caring if they could write it off.  Am I missing any rules on solicitations that would not allow me to do this without forming a charitable organization? 

A couple of years back I became involved in a not-for-profit project that needed some limited legal structure; in addition to a real bank account, we wanted to be able to register a vehicle and get insurance for it and not have to have one individual bear all the responsiblity.

Having been down the non-profit startup road, I told the others that we needed to seek out an alternative structure. We came up with the idea for a limited liablity corporation (LLC) and ran the idea of a LLC that purposefully didn't make money by a tax lawyer in Las Vegas (because we had part of our operation in Nevada and we knew that whatever state taxes and fees would be less in Nevada than California).

The lawyer said he didn't see a problem with it. When we wrote the LLC's charter, we specifically noted that the company was designed to be not-for-profit. That charter was filed in the state of Nevada five years ago and we have been merrily paying Nevada business license and corporate license fees ever since.

We are very upfront with our constituency about how the company is organized and while we don't use the phrase "non-profit" we do say "not-for-profit." We charge fees for conferences and ocassionally take donations.

But in an LLC or a partnership or even a sole proprietorship, you wouldn't be paid a "salary" -- as the owner (or an owner), you would be given whatever profits the business had at the end of the year. For example, if you collected $10,000 in a calendar year and expenses totaled $5,000, you would get an IRS W-4 form from the company in the amount of $5,000, which you would report as regular income on your personal taxes.

The standard disclaimer applies: I am not a lawyer, I don't play one on TV and this has not been legal advice, nor should it be construed as such. YMMV.

Best of luck.

\dmc

[anna.y]

We are also very small, however we are incorporated as a charity.  Probably the main reason for it is financial.  It gives us ability to solicit not only private small donations but many grants and other trust funds that are only available to registered charities. Just recently we were contacted by a solicitor acting for someone Estate who told us that we were one of the beneficiaries entitled to a share of the Estate, providing we were a legitimate, registered charity. I don't know what would be your yearly budget and if you are planning to grow, but becoming a 'non-profit' has many advantages, though of course the disadvantages are there as well. 

In Canada, apparently it is unlawful to solicit donations without being incorporated non-profit org, although many animal 'rescues' are not.  Additionally we are not allowed to even register a business here with a name 'implying' non-profit org, like rescue, sanctuary, etc. as it might be misleading the public.

In Canada there is a well written info clearly outlining available structures: regular incorporation, incorporation as a non-profit and incorporation as a charity;  differences between them, advantages and disadvantages of each and examples.  If you are small like we are, paperwork is not that bad and I would imagine that US would be somewhat similar.

Good luck

Anna Young

[DesignGuy]

You've got your law degree? Put on your barrister's hat and bill it through your firm. How?

Hmmm...Highland Park, Glencoe, North Shore...seems to me there's as much money there as ---well, as army-dumped munitions perhaps.  So, you find a local firm to run it through that focuses on class action suits, bring your research to their Senior Partners and go door-to-door on the shores of Lake Michigan and get 1000 folks to file a class-action suit.  Your firm will make it happen, given your long fight on it, no?

You've got the neighbors from numerous social gatherings on your side, unless you've "caused" all your friends away, soap-boxing on your singular issue till you have no friends any more (common problem among passionate people). 

They'll kick in far more than $50 apiece if there's payback on the other side. Of course, the increased publicity may not help their property values...

Ah, you've got an interesting issue on your hands.

I'd think you've already talked to a major environmental movement already in Illinois, or USA-based, to back this with their resources (including a 501(c)(3) in hand?

It's not too much trouble to set up your own 501(c)(3), especially given you're an attorney. That said, it's a pain in the neck to keep the paperwork (red tape) up-to-date, hold board meetings, provide minutes, deal with the IRS, etc.

ETHICALLY, you also have a dillemma as a NPO of 1) BEING a non-profit AND 2) Directly profiting from it via legal fees.  You may need to structure it in a way such that your board votes on such issues, with you recused from the vote, to enable any collected donations to flow your way.

The North Shore isn't short on funds, and that region is not adverse to giving. May be worth your while to spend the time rustling up some good board members who are like-minded.

With the little knowledge I have, first blush, I prefer the barrister approach. Use your skills, get paid directly for them. Then, when it works, and you win your case, you're golden once again.  Erin Brockovich, watch out.

[BlueEco]

You've got your law degree? Put on your barrister's hat and bill it through your firm. How?

Hmmm...Highland Park, Glencoe, North Shore...seems to me there's as much money there as ---well, as army-dumped munitions perhaps.  So, you find a local firm to run it through that focuses on class action suits, bring your research to their Senior Partners and go door-to-door on the shores of Lake Michigan and get 1000 folks to file a class-action suit.  Your firm will make it happen, given your long fight on it, no?

No.  Great thought though and I appreciate the enthusiasm!

Class actions are only for damages that have already occurred.  Without damages there is no suit at law.  Citizen suits are about enforcing current laws to AVOID future damages.  Because they are prospective, citizen suits are not for money but rather for enforcement.  So why aren't the regulators doing this work?  Great question!  Congress enacted citizen suit provisions to enforce the environmental laws when the regulators aren't or won't.  They are sometimes referred to as private attorney general actions.

So why would anyone bring a citizen suit if there are no damages to sue for?  Another good question.  Sometimes a citizen can hire an attorney and the attorney can get attorney fees if they are the substantially prevailing party.  But attorney's representing themselves pro se cannot get attorney fees because the courts say the attorney fee provision is only for "independent" representation.  So how many attornies are there that take on cases int he public interest?  Not many.  I was being represented by a public interest clinic (a 501(c)(3) no less) until it came time to file suit and then they said they could not expend their limited resources on a prolonged court battle with the U.S. Government.  So back to pro se.

I guess I could get someone else to step in as the plaintiff so I could represent them but then I run the risk of them getting cold feet and I lose control of the issue.  In fact, very few people I know would be willing to be the plaintiff in this case.  They pat me on the back and act glad that I am doing this case but will not step up to the plate themselves.

So that is why I thought that I could just go my own way and get the back patters to at least throw a few dollars my way.  I am sure that if/when I win this battle that people will come out of the woodwork to stand by my side but for now I am quite cynical and feel like Don Quixote tilting at windmills.

Steve

[DesignGuy]

You are a good man. This is a worthy discussion.

For now, sounds like it makes sense to do it for-profit, as you are now. Sell memberships and subscriptions to support your cause. I still suggest the door-to-door thing. It's old-school, but wow, it's done wonders for me in the past to get to know folks personally and build concensus. The money doesn't come right away - heck, don't even ask for it yet. Just tell them the problem, let them know how damn serious it is, and give them a letter or two of support from the pol's you've chatted with.

I'm sure the politicians say one thing, but do little. They're afraid of the same thing you are--time allocation issues.  Use what LITTLE they give you and put a strong magnifying glass on it, until you get a REAL worker-bee from a local political office on your side.  Quick way to get a politician on your side is get one of his/her major funders on your side. 

Not cynical, true.

You have a solution, but you need support from the neighborhood first.  You know, the ones living within smelling distance of the land?  Perimeter of 6 - 10 blocks is probably the entire extent of the interest group you'll ever truly have on this issues--except for the kooks out there, who don't especially mesh well with Glencoians and HPs. They'll turn 'em off, and you'll be left back in the windmill business.

Leave your card, some literature and web site info behind, so they can ponder it.  Send a followup hand-written letter. Refer them to your web site, and suggest they can do a few things there:

1. Give a donation.
2. Reseach. State your CASE. State what's needed to solve the problem and what will happen if NOTHING happens.
3. Purchase a subscription to your newsletter which supports your ongoing efforts.
4. (joke) Buy a lifetime supply of Brita water filters via your site.


Ramp it up, and when/if you come across a whale willing to give you your freedom (big $$$), reel him/her in and form a c3 to accept his/her donation to fund your worthy efforts.  EVEN if the check is written today, as long as the 501c3 is applied-for, we found out, it is a fair bet (with sound legal advice on the NPO-side of course) that his/her donation will be tax-deductible.

Hang in there, Steven. Persistance pays off, and you've written several chapters of the book on it so far...Might as well keep going now. What the heck, it got you a law degree.  Can't be all too bad of a cause.

[DesignGuy]

By the way, I put a note into a Chicago TV news guy who's a friend of mine. Sent him to your site. We'll see if he nibbles. You should write up a short and sweet executive summary, Steven. Your site doesn't get to the point quickly enough (to be blunt).  In the direct mail business, we always say, get to the point "before the fold" or the reader will toss the letter without even unfolding it--missing the "punchline" altogether.

[BlueEco]

I love the juxtaposition of selling Britta filters next to the donation button!  Pay once now or pay for life, you choose.

The nice thing about having become a lawyer is that I can keep up this battle with little ongoing expense.  Besides the $350 case filing fee, the cost of printing motions, and parking downtown once a month it just takes my labor and commitment to keep the balls in the air.  (of course this discounts the $75K in tuition but thats money already spent). 

Attorney fees would be an incredible burden otherwise.  The scariest thing the government should be aware of is that I am not paying a lawyer to handle this.  Of course they are fighting this with taxpayer money so that may not bother them much.  I even wrote to Obama's office to ask why the administration is using taxpayer money to fight my trying to enforce the laws enacted by congress.  He declined to get involved because of separation of powers.

In my view, the limited money being spent on this case is worth more than any law class I took as far as learning how the court system really works.  No employer would have let me do what I am doing this soon after graduating. I find out any day now if I passed the Illinois Bar. 

The only wrench in the system is that my wife has taken the unreasonable position that our investment in law school should be applied to something that pays.  Can you believe that?!  Thankfully we have our business I started while in school, http://www.BathGems.com importing bathroom fixtures from China.

That should tide us over until something comes along.  The Natural Resource Defense Council is opening a midwest office in Chicago and I have applied for a position there.  It seems like a very nice fit.  Adopting my case mid-stream might be just the local interest case they need to ingratiate themselves with local foundations and donors.

Lets hope.

Steve

[DesignGuy]

Oooooo...I like the vessel sinks. I bought one on eBay last year, hammered copper. Love it.

Anyhoo,
I'll keep watching your site. Let me know if you can give me some insight on a water testing business too I own the domain, http://www.MyWaterlab.com, and work with a testing company out here in McHenry County to produce consumer tests. 

The other major issue we're dealing with out here--groundwater protection. By 2030, it is projected that aquifers could be at the point where demand exceeds supply. Can't get Lake Michigan H20 (maybe we don't want it anyways), due to Canada-US treaties;  so we're forced to look at alternate sources.

Ah, water...gotta love it.

[BlueEco]

How about this for an executive summary:

The Army created a hazardous waste landfill on the shore of Lake Michigan at Fort Sheridan.  Now they are trying to pass the property off to developers without having fully cleaned it according to federal environmental standards.  Worse still, the US EPA has indicated it will not sign off on the remedy because the Army contractors did not implement the protective devices as designed.  So instead of fixing the landfill, the Army has rewritten the law so that US EPA concurrence is not required.

Steven B. Pollack, a local resident, has filed a citizen suit in Federal Court to stop the transfer of property until all federal laws are complied with.  In response, the government has filed a motion to dismiss arguing that Federal Courts do not have jurisdiction to hear challenges to ongoing cleanup actions until the cleanup is complete.

Pollack notes the irony that the government is invoking the ongoing cleanup as a bar to judicial review while the same ongoing cleanup is a bar to transfer of contaminated federal property that is the basis for his suit.  The question for the court is whether the challenge to the transfer represents a challenge to the cleanup. 

If so, then the case is barred until the cleanup is final.  Pollack insists that because the transfer was not part of the remedy then his is not a challenge to the remedy and the court is free to pass judgment on whether the government has fulfilled all of its obligations prior to transfer and redevelopment.

[BlueEco]

The only thing I know about water testing is

1) It costs $200 to test water for explosives compounds one might find from 1,000,000 rounds of artillery being fired near ones municipal water treatment plant and that the closest lab is in Lincoln NE

2) The Highland Park water treatment plant only filters the water for bacterial components, not the metals and VOCs that are in Landfill 7

3) The Highwood and Highland Park water treatment plants have no emergency plan in the case of catestrophic bluff failure and release of Landfill 7's contents into the vicinity of the intake cribs.  Technically this third point is not about water testing but it did fit in the category of things I know.

If you want to sell the domain to someone in the water business you might consider listing it on SEDO.com

Steve

[DesignGuy]

- Excellent overview, thank you. This is a very interesting story--probably as interesting from a human plight side (yours) as a community plight side.

- Other than making an interesting (I think)  local area connection, has our discussion been any help on the non-profit question, or more of an excercise in already-thought-of-that?

[BlueEco]

- Other than making an interesting (I think)  local area connection, has our discussion been any help on the non-profit question, or more of an excercise in already-thought-of-that?

Well I am very curious about these whales. If they really exist, it gives me hope that forming a 501(c)(3) may do more than allow me to solicit $25 donations from people who will probably not care if they can write it off.  I was also writing off seeking grants from foundations as an activity better suited for a larger organization because the time spent soliciting might just offset the time I could devote to action.

So yes, this has helped me clarify a good reason to go through the NPO process.

Thanks,

Steve

[DesignGuy]

Glad it was of help. Yes, whales exist. We can talk off-line, since we're out of sync with the forum here anyways as is. It'd make for a great Joomla-driven site though.

Key in setting your c3 up from the get-go is mission-mission-mission centric. Make the mission focused on environmental preservation and protection -  not specific to this exact cause. Then, make this very specific cause your first case.  Build from there. You will find support from major players, and they exist to do good, and fund causes such as this to get work done that government can't or won't. 

Feel free to ping me at [email protected].

[NativePages]

I kind of scanned the previous posts, so if I'm being a bit redundant I apologize. However, I'm speaking directly from personal experience. I founded and chair a 501-c-3. There are both IRS rules AND non-profit ethics rules that have to be considered.

You cannot pay yourself for your time or services if you are on the board and/or an officer of the board. In other words, you'd have to get friends/family to be your board, they'd have to hire you.

You can only pay for that portion of your expenses relevant to that percentage of your cases that are pro-bono. In other words, if 50% of your cases are pro-bono, then the non-profit can pay 50% of the office supplies, utilities, only those travel expenses directly related to your pro-bono cases, etc. (all rules relevant to a commercial office space vs. a home office space still apply - the percentage that the non-profit pays is based on that portion of a home office you could legally deduct, so if you're counting 25% of your home expenses as home office expenses, the non-profit can pay only 50% of that 25%).

I understand fully the hassle in setting up and maintaining a non-profit. I'd like to warn you that, despite what any tax folks might tell you, the "oversight" of non-profits is increasing significantly. You would have to be extremely diligent in keeping paper trails for any monies you took in and how you spent them, so the hassle is even greater now than it used to be.

I would suggest you look around your area and find a relevant EXISTING non-profit who would be willing to serve as the fiscal agent for your work. That means they'd agree to sign on the dotted line for any grants (the grant application is submitted in their name, or in your name but with them as the responsible overseers), all donations would funnel through them to you for disclosure statement purposes, you'd have to do some reporting to them on at least an annual basis, but it wouldn't be hard to set up.

The good news is, it would allow you to bypass a lot of the set-up hassles, and you'd probably come out ahead financially because you COULD legally include a reasonable fee for your services in any proposals you submitted. Just check out the potential candidates carefully. A decent NPO with any level of integrity will charge at MOST a nominal administrative fee of any money collected. A REALLY decent NPO who cares as much as you do about your work will charge nothing or will "up" the grant application amount to include their portion of the expenses. A SUPER good NPO will charge nothing and help you find and apply for grants, including writing assistance if needed.

NativePages

[RG007145]

I thought about forming a new environmental organization that watches over the regulators as they watch over the regulated polluters and litigating lapses in enforcement.

As long as you keep the tone right, people from your own community should not have a problem writing off small amounts. If you feel that there is too much work involved in forming and maintaining such an organization, you should look into forming some agreements with the regulators whom you are to watch over.

A little bit of stretching your work never hurt anyone.

Personally, I feel that through your manner of writing in the first post, you biased the discussion towards being "not non-profit" and hurt the neutrality of the discussion.

My question is if I can simply solicit donations from people without being a non-profit?  The donors would understand that their contribution is not tax deductible.  Maybe that would turn off these foundations but I bet I could get micro-donations in the $100 to $500 range without people caring if they could write it off.  Am I missing any rules on solicitations that would not allow me to do this without forming a charitable organization?

I assume that is your real question, though slightly contradictory to the topic of the post.

As I said, people from your own community, if they really need the services of your organization, should not mind shelling out small amounts without caring for tax.

You are not really missing any rules, if they give you money, it's yours - but you would be wise to keep track of acquirement and release of each contribution - no matter how small. This would be very tedious, but you seem dedicated - so go ahead.

[blossominc]

I would recommend what NativePages has:

I would suggest you look around your area and find a relevant EXISTING non-profit who would be willing to serve as the fiscal agent for your work. That means they'd agree to sign on the dotted line for any grants (the grant application is submitted in their name, or in your name but with them as the responsible overseers), all donations would funnel through them to you for disclosure statement purposes, you'd have to do some reporting to them on at least an annual basis, but it wouldn't be hard to set up.

It's a great way to start without hassle.  I currently run a very small, startup non-profit and faced the same dilemma as you.  I did go for it and can't say that I regret it because there are several programs, grants and businesses out there that really help non-profits.  TechSoup Stock, Gifts In Kind International and several corporation community grants have become an invaluable resource for us.

I wish you luck.  I think it takes a certain social entrepreneurial spirit to undertake the type of project you are after and with a lot of hard work and dedication you can really make a difference!  I wish you tons of good luck and feel free to pm me if you have any questions.

Oh!  I also wanted to mention that perhaps you might qualify for this type of funding for your project: http://www.echoinggreen.org/