One step closer to tax-exempt status

This week we submitted the Ada Initiative’s application to become a tax-exempt organization under U.S. law (for non-profit aficionados: we filed our Form 1023). This was a huge amount of work (both ours and our lawyer’s) and only made possible by the funding from our Seed 100 funders. Seed 100 funds contributed to both our time in preparing the form including extensive project planning and budgeting for 2012 and 2013, and to our legal expenses.

We don’t know for sure when (or if!) our application will be approved, but we hope to have a ruling from the IRS by the end of 2011.

Why is applying for tax-exempt status such a big deal? Here are a few of the advantages of being tax-exempt:

  • Many corporations match employee donations to tax-exempt organizations
  • Donors know we must follow a vast set of rules required to keep tax-exempt status
  • Donations to us will be tax-exempt for U.S. people or corporations (duh)
  • We get lower rates on credit-card processors
  • Many organizations offer services ONLY to tax-exempt organizations or significant discounts

Many of the rules that tax-exempt organizations must follow seem like they would make good sense for for-profit corporations as well (see, for example, the rules for determining executive compensation).

As an interesting side note, some new forms of corporations have recently been created that strike a balance between the corporate goals of profit and public benefit, with California recently passing bills that create new “flexible purpose” and “benefit” corporations. We’re staying the traditional non-profit route, but look forward to a future in which corporations can make decisions based on social good as well as profit!