I saw all the announcements about RG becoming an independent 501(c)(3) nonprofit. Why are we talking about this again?
Great question. I may be a little biased as an operations geek, but I think it’s helpful to pull the curtain back and share with the RG community why we make certain decisions about our organizational development. We’ve also gotten some questions about the context for this transition so wanted to share more. If your eyes glaze over reading this kind of stuff, feel free to skip!
What is a 501(c)(3)?
Let’s get the legal jargon out of the way first:
Section 501(c)(3) is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations, specifically those that are considered public charities, private foundations or private operating foundations.
In plain terms, “501(c)(3)” is a tax code, but it is often used as shorthand to refer to nonprofits and foundations. If an organization applies for and receives designation from the IRS as a 501(c)(3) then they are exempt from paying federal income tax. The overwhelming majority of 501(c)(3) organizations in the US are nonprofits.
Why did RG become our own independent 501(c)(3) nonprofit?
For the past 17 years, RG has been “fiscally sponsored” * (see definition below) which basically means we had a parent nonprofit organization and had our 501(c)(3) tax-exempt status through them. We paid them 10% of RG’s annual expenses to manage administration and legal compliance such as accounting, payroll, bank accounts, healthcare, human resources support, and more.
This is a common setup for small or starter nonprofits in particular, for whom it’s not cost effective to pay for their own organizational administrative infrastructure. However, RG outgrew this model. We want the flexibility to have our own HR policies, accounting practices, healthcare choices, etc. It is also more cost effective for RG as an organization to administer our own administration rather than pay another nonprofit to do it for us.
RG was overdue to transition away from our “parent” or “umbrella” nonprofit and become our own entity. We made this official on July 1, 2015.
Why is this a big deal for RG?
This transition is a victory for RG because, while we have much love and appreciation for our old fiscal sponsor, being our own independent organization with our own 501(c)(3) designation significantly streamlines our administration. This means more time and resources for our external work! It also means we can institute mission-aligned policies and practices, such as offering more generous parental leave, covering more of our staff’s health insurance, and opening our organizational bank account at an historic union bank rather than a huge corporate institution.
Finally, now that RG is officially its own entity, our success or failure is entirely up to us. We have left the nest, and it’s an exciting time to establish our practices, ensure our financial sustainability, and take full responsibility for our organization.
But I read The Revolution Will Not Be Funded and nonprofits are evil!
I read The Revolution Will Not Be Funded too and it’s a great and important book. The book describes how nonprofits over time have been used by the state to regulate and control radical social movements. We understand this critique and are doing the best we can to build an organization that does not replicate harmful patterns. Also, as a small nonprofit that is 90% funded by our members, we are not subject to the same constraints and requirements as much larger, government-funded nonprofits.
We know there are many different ways to structure an organization in the US, from private corporations to LLCs to co-ops, but for the work we need to do and the funding we rely on (which includes significant grants from members’ family foundations which can only legally give to another 501(c)(3)), being a nonprofit works best for us.
How does this affect our members or broader community?
Really, not much has changed that affects our members, organizational structure, or external operations. The biggest change is that a) your contributions will go 100% to cover RG’s work instead of a portion going to our fiscal sponsor fees and b) whenever you have a financial transaction with RG now, it will no longer be with “Third Sector New England,” but instead with “Resource Generation”. If you are giving to RG through a donor advised fund or family foundation, be sure to update your records to reflect RG’s new EIN number and official organizational name of “Resource Generation, Inc.”
Questions? Contact Iimay Ho, Acting Executive Director at firstname.lastname@example.org
* Fiscal sponsorship refers to the practice of non-profit organizations offering their legal and tax-exempt status to groups engaged in activities related to the organization’s missions. It typically involves a fee-based contractual arrangement between a project and an established nonprofit.