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Can you explain how that works? Why would either the for-profit entity or the executives get a tax deduction because one of the stakeholders is a nonprofit?

by jcheng 2y ago

yieldcrv 2y ago
It's not automatic, they'll donate something of value to it. Here is the default reality: A) they can do this to any "60%" non-profit. 60% refers to the category of maximum tax deduction B) they won't be in control of the assets after they donate C) but they'll be loosing money they otherwise would have that exceeds the tax burden But all of these are surmountable by already having your own non-profit with the same board members, or aligned board members: A) OpenAI is a 60% non-profit that they control and so B) they'll still be in control of the assets they donate as if they never moved it C) you can donate illiquid things that would have never been able to be converted to dollars. for example, those PPUs? or perhaps just some cloud compute credits? shares, or membership interests, of an organization as long as a market value can be pointed to. A bunch of GPUs? An illustrative example would be how the new for-profit OpenAI entity sold some shares for $6bn to represent a 157bn valuation, this means that 3% of the shares were exchanged for dollars. And all 97% of the shares are said to be worth the exact same instantly, and indefinitely into the future. You could donate 1% of the shares to the non-profit OpenAI and that's a $1.57bn tax deduction against whatever income you currently have that year. and if you don't have enough income to offset then it keeps rolling forward. in a 60% non-profit, assets can only offset up to 30% of your tax bill, and cash donations can be used to offset an additional 30%. Alternatively, cash alone can offset up to 60%. Since donating cash is suboptimal, do 30% illiquid, appreciated, assets, and 30% cash. The cash can also be found by borrowed funds but this is not seen as optimal, it can be seen as strategic though. Once again, all the donated assets are in a non-profit you still control, while obtaining the tax benefits. How is this useful? many ways. Non profit has financial ammunition and firepower. It can pump investments you also own by purchasing, or getting involved with. The regulations curbing this are quite flexible. Its a pretty high percentage ownership threshold between you and the nonprofit for it to violate self-dealing regulations, and even when violated you have like 1 - 3 years to get under those thresholds. But even that's just for shareholdings. It can print revenue for things you like, buy more GPUs, burn more energy in compute from your organization, make external investors enamored. It will also be doing its stated mission, research. Honestly, the stated mission is exactly what I would do if I was also interested in doing all of the above. The longest preparation is creating the non-profit and getting that approved. They already have that. so the rest is just pressing play.

Can you explain how that works? Why would either the for-profit entity or the executives get a tax deduction because one of the stakeholders is a nonprofit?

by jcheng 2y ago

Can you explain how that works? Why would either the for-profit entity or the executives get a tax deduction because one of the stakeholders is a nonprofit?

yieldcrv 2y ago

It's not automatic, they'll donate something of value to it. Here is the default reality: A) they can do this to any "60%" non-profit. 60% refers to the category of maximum tax deduction B) they won't be in control of the assets after they donate C) but they'll be loosing money they otherwise would have that exceeds the tax burden But all of these are surmountable by already having your own non-profit with the same board members, or aligned board members: A) OpenAI is a 60% non-profit that they control and so B) they'll still be in control of the assets they donate as if they never moved it C) you can donate illiquid things that would have never been able to be converted to dollars. for example, those PPUs? or perhaps just some cloud compute credits? shares, or membership interests, of an organization as long as a market value can be pointed to. A bunch of GPUs? An illustrative example would be how the new for-profit OpenAI entity sold some shares for $6bn to represent a 157bn valuation, this means that 3% of the shares were exchanged for dollars. And all 97% of the shares are said to be worth the exact same instantly, and indefinitely into the future. You could donate 1% of the shares to the non-profit OpenAI and that's a $1.57bn tax deduction against whatever income you currently have that year. and if you don't have enough income to offset then it keeps rolling forward. in a 60% non-profit, assets can only offset up to 30% of your tax bill, and cash donations can be used to offset an additional 30%. Alternatively, cash alone can offset up to 60%. Since donating cash is suboptimal, do 30% illiquid, appreciated, assets, and 30% cash. The cash can also be found by borrowed funds but this is not seen as optimal, it can be seen as strategic though. Once again, all the donated assets are in a non-profit you still control, while obtaining the tax benefits. How is this useful? many ways. Non profit has financial ammunition and firepower. It can pump investments you also own by purchasing, or getting involved with. The regulations curbing this are quite flexible. Its a pretty high percentage ownership threshold between you and the nonprofit for it to violate self-dealing regulations, and even when violated you have like 1 - 3 years to get under those thresholds. But even that's just for shareholdings. It can print revenue for things you like, buy more GPUs, burn more energy in compute from your organization, make external investors enamored. It will also be doing its stated mission, research. Honestly, the stated mission is exactly what I would do if I was also interested in doing all of the above. The longest preparation is creating the non-profit and getting that approved. They already have that. so the rest is just pressing play.