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The consequence of renouncing non-profit status is that the $130.5m in donations is characterized as taxable income to the corporation, and the IRS can impose p
by gamblor956 2y ago
The consequence of renouncing non-profit status is that the $130.5m in donations is characterized as taxable income to the corporation, and the IRS can impose penalties and interest dating back to the formation of the corporation (i.e., it can pierce the non-profit veil).
So, not a loophole in the sense that the entity will be subject to tax. And saavy donors will usually have a conversion clause that either converts their donation to a capital contribution in the event that non-profit status is lost, or rescinds their donation. But that would require having donors that don't believe they know everything about everything and poo-poo safeguards like that...
- jgalt212 2y ago> The consequence of renouncing non-profit status is that the $130.5m in donations is characterized as taxable income to the corporation Or can they convert to equity, then it's not income.
- deleted 2y ago[deleted]
- gamblor956 2y agoNo, if it was characterized as a donation on the non-profit's financials, after the loss of non-profit status the amount will be treated as revenue unless the donation legalese contained a conversion clause. But conversion clauses are extremely rare. 99.9999% of the time, if a donor is concerned that an entity will do something to jeopardize or deliberately lose its non-profit status, they simply won't make the donation.
- aurareturn 2y agoThe $130m in tax and penalties are likely puny compared to the value of the equity the original donors could have gotten. I think if Elon can convert his donations into equity, he wouldn’t have sued.