Transferring to another non-profit

As some of you know, I sometimes suggest SPI as the next step on a
free and open source software project's growth from a group of
developers to an independent, autonomous, sustainable existance.

http://www.spi-inc.org/treasurer/associated-project-howto.html says "Your
Liaison may decide that your project is quitting SPI at any time. Any
assets and money held by SPI for your project may be transferred to the
501(c)3 US non-profit of your choice, or simply held until expended."

Is that a legal constraint in the US for 501(c)3 organisations?

What possibility there is for transferring assets to a non-US
organisation if a project wants to end its link with SPI?

Thanks,
--
MJ Ray (slef) LMS developer and webmaster at | software
www.software.coop http://mjr.towers.org.uk | .... co
IMO only: see http://mjr.towers.org.uk/email.html | .... op

MJ Ray wrote:
> As some of you know, I sometimes suggest SPI as the next step on a
> free and open source software project's growth from a group of
> developers to an independent, autonomous, sustainable existance.
>
> http://www.spi-inc.org/treasurer/associated-project-howto.html says "Your
> Liaison may decide that your project is quitting SPI at any time. Any
> assets and money held by SPI for your project may be transferred to the
> 501(c)3 US non-profit of your choice, or simply held until expended."
>
> Is that a legal constraint in the US for 501(c)3 organisations?

Yes.

> What possibility there is for transferring assets to a non-US
> organisation if a project wants to end its link with SPI?

An attorney or CPA (Certified Public Accountant) would need to be
consulted.

--
----------------------------
Michael Schultheiss
E-mail: schultmc(at)spi-inc(dot)org

Hi MJ,

On Tue, Sep 29, 2009 at 11:25:56AM -0400, Michael Schultheiss wrote:
> MJ Ray wrote:
> > http://www.spi-inc.org/treasurer/associated-project-howto.html says "Your
> > Liaison may decide that your project is quitting SPI at any time. Any
> > assets and money held by SPI for your project may be transferred to the
> > 501(c)3 US non-profit of your choice, or simply held until expended."
> >
> > Is that a legal constraint in the US for 501(c)3 organisations?
>
> Yes.
>
> > What possibility there is for transferring assets to a non-US
> > organisation if a project wants to end its link with SPI?
>
> An attorney or CPA (Certified Public Accountant) would need to be
> consulted.

To elaborate on what Michael said, we need to ensure the money remains used for
the purposes for which SPI is tax-exempt, and also honor the more specific
donor intent. For non-501(c)(3) organizations, additional steps have to be
taken to ensure this well enough to satisfy the US tax authorities, hence the
consultation with the attorney or CPA.

- Jimmy Kaplowitz
jimmy(at)spi-inc(dot)org

> To elaborate on what Michael said, we need to ensure the money remains used for
> the purposes for which SPI is tax-exempt, and also honor the more specific
> donor intent. For non-501(c)(3) organizations, additional steps have to be
> taken to ensure this well enough to satisfy the US tax authorities, hence the
> consultation with the attorney or CPA.

For that matter, we couldn't even transfer to "any 501(c)3". It would
have to specifically be a 501(c)3 supporting Free Software. Of course,
a foundation for a specific project would qualify.

Based on my own (non-professional) experience with NPOs, I'd say that
any transfer to a non-US non-profit is likely to be impossible, and
projects would be far better off just spending their money down to zero
than trying to transfer it.

--Josh Berkus

On Tue, Sep 29, 2009 at 11:21:57AM -0700, Josh Berkus wrote:
>
> > To elaborate on what Michael said, we need to ensure the money remains used for
> > the purposes for which SPI is tax-exempt, and also honor the more specific
> > donor intent. For non-501(c)(3) organizations, additional steps have to be
> > taken to ensure this well enough to satisfy the US tax authorities, hence the
> > consultation with the attorney or CPA.
>
> For that matter, we couldn't even transfer to "any 501(c)3". It would
> have to specifically be a 501(c)3 supporting Free Software. Of course,
> a foundation for a specific project would qualify.

There are two issues here. One is respecting the desires of the
original donor of the money. If it was earmarked for use by a
particular project, that seems fairly straightforward.

The second is maintaining SPI's 501(c)(3) status; for this, all that's
necessary is keeping the IRS happy, and that means that the money must
be spent for purposes which satisfy 501(c)(3). This doesn't
*necessarily* mean that the destination organization has to have
501(c)(3) status, but it's a lot easier if that's the case. The short
version is a tax accountant/lawyer specializing in US non-profit tax
law would need to be consulted.

> Based on my own (non-professional) experience with NPOs, I'd say that
> any transfer to a non-US non-profit is likely to be impossible, and
> projects would be far better off just spending their money down to zero
> than trying to transfer it.

Absolutely. If the we really cared, in theory we could create a
501(c)(6) subsidiary of SPI, and accept money from non-US donors into
accounts owned by the 501(c)(6), which would be earmarked for specific
projects much like the current monies owned by SPI proper. Those
monies would not be subject to the 501(c)(3) restrictions (but
donations to a 501(c)(6) don't get favored tax treatment for US
donors, which is fine if the donors are not US persons) and so it
would be easier to transfer that money out to a project. It's
probably not worth the effort to set something like this up, though,
since it would require some profesional legal and tax consultations.

- Ted

On Tue, Sep 29, 2009 at 08:06:14PM -0400, Theodore Tso wrote:
> There are two issues here. One is respecting the desires of the
> original donor of the money. If it was earmarked for use by a
> particular project, that seems fairly straightforward.
>
> The second is maintaining SPI's 501(c)(3) status; for this, all that's
> necessary is keeping the IRS happy, and that means that the money must
> be spent for purposes which satisfy 501(c)(3). This doesn't
> *necessarily* mean that the destination organization has to have
> 501(c)(3) status, but it's a lot easier if that's the case. The short
> version is a tax accountant/lawyer specializing in US non-profit tax
> law would need to be consulted.

The third issue is complying with SPI's own corporate purposes; separate from
keeping donors and the IRS happy, SPI can't legally act outside of its
corporate purposes just due to standard corporate law. I doubt this would be an
issue if we give project funds to any place we'd be likely to want to give the
funds, but in theory if we e.g. wanted to give SPI funds to (to pick a pretty
clear example) a US 501(c)(3) organization dedicated to awarding university
scholarships to disadvantaged students, that would not be allowed.

As for donor intent, if we give project-earmarked funds to a non-profit that's
not specific to that project (e.g. FSF or Software Freedom Conservancy), we'd
also need to ensure that they put the corresponding restriction into their
accounting records as well, though I expect you're right we'd need less proof
of this if they have 501(c)(3) status.

Random side note: non-US organizations can also apply to the US IRS for
501(c)(3) status in at least some cases, though I don't know how many do. This
is primarily helpful to attract US donors with tax deductions, but does have
various requirements attached.

Also, thanks for the interesting idea about the 501(c)(6) if we ever want to
explore that.

- Jimmy Kaplowitz
jimmy(at)spi-inc(dot)org

Josh Berkus wrote:
> Based on my own (non-professional) experience with NPOs, I'd say that
> any transfer to a non-US non-profit is likely to be impossible, and
> projects would be far better off just spending their money down to zero
> than trying to transfer it.

What about non-spendable assets like domain names and trademarks?

Thanks for all the informative answers,
--
MJ Ray (slef) LMS developer and webmaster at | software
www.software.coop http://mjr.towers.org.uk | .... co
IMO only: see http://mjr.towers.org.uk/email.html | .... op