Can Fiscal sponsorship be used to advance a free-enterprise-social enterprise movement?
General Provisions: The author of this story is not a lawyer and is offering a layman’s opinion about the law and social justice.
I was not thinking about education or fifty-million-dollar school systems today but when a PFD appeared in my web browsing pages that I did not open nor search, it engaged my curiosity. Where did it come from? How did it get here?
It must be a sign!
The document is the Bylaws of the Boothbay Region Education Foundation. The bylaws do not have a date, which is irritating and unprofessional. A search produced the same document listed as Bylaws on the AOS website.
Also found, is a separate document called BYLAWS on www.boothbayregioneducationfoundation.org leading to a Squarespace site Squarespace is a system for collecting payments. This is consistent with the purpose stated in the articles of incorporation of the Boothbay Region Education Foundation, (downloadable for a small fee here) which, in short, states that the purpose of the organization is fundraising. The articles of incorporation mandate that the corporation is not organized for and shall not be operated for profit.
I shall refer to the first set of bylaws as BylawsA and the second set as BylawsB. They overlap in many ways but BylawsB is more complete. The following section demonstrates.
5. Tax Exempt Purpose. It is intended that the Corporation shall have the status of a Corporation (i) which is exempt from Federal Income taxation under § 501(c)(3) of the Code, (ii) contributions to which are deductible under §§ 170(c)(2), 2055(a)(2) or 2522(a) (2) of the Code and (iii) which is “other than a private foundation” as defined in § 509(a) of the Code. The Articles of Incorporation and these Bylaws shall be construed accordingly and all powers and activities of the Corporation shall be limited accordingly. In this regard:
(a) The Corporation shall not engage in any transaction, or do or permit any act or omission, which shall operate to deprive it of its tax exempt status under §501(c) (3) of the Code; (emphasis by author)
BylawsA begins by defining the size parameters of the Board of Trustees and instructing that the Board of Trustees will be chosen by the Board of Trustees.
BylawsB defines how the original Board of Trustees is appointed.
The initial Board of Trustees shall be appointed by the incorporator of the Corporation at the direction of the Founder of the Corporation.
BylawsA Section 5: Powers says “ The Board of Trustees shall manage the property and affairs of the corporation “
There is no definition in BylawsA of a purpose or description of what the “property and affairs of the corporation” entail.
In BylawsB, it is stated that
“4. Purposes. The Corporation is organized exclusively for charitable, scientific, and educational purposes as set forth in the Articles of Incorporation”
The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.[1] Page Last Reviewed or Updated: 12-Apr-2017
The Maine gov corporate name search reveals that the Boothbay Region Education Foundation was incorporated in the year 2000, See a full listing of the filings.
The incorporation of the Boothbay Region Education Foundation predates the enactment of the Industrial Partnerships Act in 2013, which repurposes public education as industrial training, raising questions as to whether raising funds for a new school to be used for industrial training is a violation of the corporate charter of The Boothbay Region Educational Foundation. The argument hinges on the interpretation of words, such as “education”, “non-profit” and “for-profit” “organized for”.
One might think that there is no confusion between the meanings of “non-profit” and “for-profit” but familiarity with existing laws and accepted IRS non-profit purposes, reveals that the line of separation between the two identifiers has blurred, as I shall show.
If the Boothbay Region Education Foundation corporation is organized for raising funds for industrial training facilities and instructors, then it can be argued that it is organized for a profit purpose. To avoid such an interpretation, funds raised would require the stipulation that the school will not be used as an industrial training center, or at least the funds cannot be used to purchase industrial training equipment or to pay for industry-specific instructors, or a manager for an industrial training facility.
The interests of parties donating to the foundation are also a factor. Do those making tax-deductible contributions stand to benefit by the public educational system repurposed as industrial training?
Andersen Design sets a precedence
Industry-specific is an important distinction, as Andersen Design encountered when I applied for fiscal sponsorship via Fractured Atlas and was rejected for the use of the word “production” in the application. This was based on a false definition of production put forth by Fractured Atlas, interjecting a motive into the meaning by asserting that the word “production” means that one is “only in it for the money”. From my reading of the legal parameters of fiscal sponsorship, motivations do not matter. Under the law, an assertion of motive needs to be founded on an evidentiary argument. To my reading of the legal parameters, it is the project that matters and the applicable question is “Does the for-profit entity help the non-profit entity achieve a common goal ”? The entity applying for fiscal sponsorship is not a non-profit entity which is why it needs a fiscal sponsor to apply for non-profit funding. Fiscal sponsorship does not transfer non-profit tax exemptions to the for-profit entity, except for the ability to raise tax-deductible funding, which is the same function that the Boothbay Region Education Foundation performs.
Did Fractured Atlas believe that approving Andersen Design as a social enterprise, would endanger its tax-exempt status? I submit the interpretation of our rejection was that Fractured Atlas, the fiscal sponsor, applied rules governing a non-profit organization to Andersen Design, a free-enterprise entity. One might ask what motivated Fractured Atlas to do that?
At the time Andersen Design was applying to Fractured Atlas, Fractured Atlas was busy forming its investment subsidiary, to be listed on the SEC exchange
Exponential Creativity Ventures, Inc. (ECY), is a new investment enterprise and subsidiary of Fractured Atlas, Inc., developed to advance Fractured Atlas’ mission ( described above). ECV makes early-stage investments in new companies and technologies that maximize humanity’s creative and expressive potential. In keeping with Fractured Atlas’ mission, ECV focuses on three broad categories of investment: Core Innovation in Frontier Technology (technology that makes wholly new forms of creative expression possible or radically lowers barriers of access to existing systems); Tools and Platforms (products that expand oppotunities for creativity, with a particular emphasis on casual creatives and independent artists); and Networks and Marketplaces (platforms that connect creatives throughout the developing world to global customers and market Financila Statement FRACTURED ATLAS, INC. AND SUBSIDIARIES AUGUST31._0J9A 02018 (emphasis by author)
Fiscal sponsorship is a for-profit- non-profit relationship, similar in structure and concept to a public-private relationship, the source of a great deal of legal and social justice confusion. I have observed that public and private identities merge and exchange in a manner that is arguably unethical, if not unconstitutional. Lacking legal clarity, attitudes and values are interjected that have nothing to do with the legal relationship, such as making blind assertions about the motives of others.
For example, in prevailing non-profit rhetoric, one might be led to believe that an intent by the sponsored entity to become a non-profit entity, is a legal requirement of fiscal sponsorship, inappropriately asserting motivations that I have never found supported in legal descriptions. The legal concept is cut and dry. Entities of separate and different legal structures can work together on a common goal. It’s the achievement of the common goal that matters, not motivations. By definition, the interacting entities are motivated differently. Who is to say what motivates anyone and what does it matter to the result of achieving a mutual goal? Furthermore, under the law, motivations have to be methodically established, not asserted without rhyme or reason as happened in our case. Not only were alleged motivations inappropriately applied to our company, but also inserted into the definition of a word, “production”.
Even this definition from the American Bar Association implies that a sponsored project must have the intent of becoming a 501(3)© organization, after saying that it is not defined by law and can take many forms.
Fiscal sponsorship is a contractual relationship that allows a person or organization that is not tax-exempt to advance charitable or otherwise exempt activities with the benefit of the tax-exempt status of a sponsor organization that is exempt from federal income tax under Internal Revenue Code (IRC) Section 501(c)(3)…….Because fiscal sponsorship does not refer to a relationship that is defined by the law, it may take many different forms. Understanding the most common forms of fiscal sponsorship and how they may be properly structured can enable an attorney to provide invaluable advice to clients seeking to start a charitable venture https://www.americanbar.org/groups/business_law/publications/blt/2015/05/04_bradrick/
There is a lot of wiggle room in the definition of “charity”, but it still should be defined by the activity and not by the agent conducting it. In Andersen Design’s case, our on-the-job training involves the teaching of scientific skills and encouraging artistic abilities. Before the minimum wage was reconfigured as a living wage, the minimum wage offset the expense involved in offering the employee on-the-job training.
When teaching technical skills and developing artistic talent on the job, it is quite possible that the business loses money in the process, and also possible that the employee does not stay on the job, causing the business to lose its investment. As minimum wage loses its value as a job-training wage, other systems must be created that make it possible for on-the-job training to continue to exist to “maximize humanity’s creative and expressive potential”. to quote from Exponential Creativity Ventures, Inc.
Being that companies that do on-the-job training are often outside of the state-subsidized sector, they are part of the sector that subsidizes the targeted sector through taxation. The favored businesses are most often large corporations, including publicly traded corporations that make large profits and create the foundations that are the source of the non-profit funding distributed to tax-exempt organizations.
Fiscal sponsorship can and should be a form of social justice for the untargeted sector of the economy, aka- the small business free enterprise sector, where growth is encouraged by the new remote working movement, but it is blocked by long-standing cultural attitudes which the non-profit sector has toward the free-enterprise sector, even as the non-profit sector has adopted market-based means of self-funding.
In Fiscal sponsorship, the sponsor is the non-profit 501(C)(3) entity. If a sponsored project were a non-profit 501(C)(3) entity, It would not need a fiscal sponsor. In Andersen Design’s case, the project is education in art and scientific disciplines. In today’s educational rhetoric they call that STEAM. Andersen Design’s training functions are also economic development, historically providing trained employees for many years to a cluster of ceramic industries that sprung up in the region after Andersen Design established the first ceramic industry on the Boothbay Peninsula in the 1950s.
The industrial training that Andersen Design provided on the job while paying a wage and payroll taxes, is the flip side of using the public educational system as industrial training. In the hypothetical lawsuit acting out on the stage of my imagination, the rejection of Andersen Design for fiscal sponsorship sets a precedent relevant to the consideration of a conflict of interest between the Boothbay Region Educational Foundation’s non-profit parameters and the repurposing of public education as industrial training under the Industrial Partnerships Act. The interpretation that Andersen Design was refused an opportunity to apply for non-profit funding because Fractured Atlas qualified the teaching of the making of our product as a benefit to our company (job training), and therefore non-compliant with the non-profit stipulation that the corporation is not organized for and shall not be operated for profit, then, by the same standard, using the public educational system as job training for the state’s targeted sector, is equally non-compliant to the same non-profit condition as applied the Boothbay Region Education Foundation.
Of course, Fractured Atlas did not give the reason that I have speculated but the reason they gave is flat out absurd. If I were to sue FA for brand defamation, my interpretation of the real motivation behind Fractured Atlas’s denial of Andersen Design builds a far more substantial case than Fractured Atlas’s claims made about our motivations, which are easily refutable based on our, product, history and production process, beginning with the fact that we make our glazes and bodies from original recipes and raw materials, and that our glazes are, by intent, interactive. That is not a recipe for a production that is only in it for the money, as anyone in the production business knows.
In social justice, and possibly arguable as law, the rejection of Andersen Design for fiscal sponsorship sets precedence. Giving the benefit of the doubt to the interpretation that we were rejected from access to nonprofit funding because the project benefits our company in the form of job training, the reasoning must be equally applied to using a publicly funded educational system as industrial training for the state’s targeted sector. If the same standard is not applied, given that each situation is premised on non-profit funding, it underscores the difference in treatment of large and small entities, aka the targeted and untargeted sectors of a centrally managed economy.
After rejecting the Andersen Design purpose established over sixty-seven years, Fractured Atlas suggested that we could apply instead for fiscal sponsorship as a school or a museum. As a school, we would be forbidden to teach how to make Andersen Design products. This establishes that FA identifies a job training benefit realized by the sponsored project as a violation of non-profit rules. However, Andersen Design is not a non-profit corporation. Non-profit regulations do not apply in the free enterprise sector. Should there be a partnership between entities of two different legal structures in which one side of the partnership is forbidden to realize a benefit on its own established legal terms, even though it serves the goals of the common project? Andersen Design is a for-profit company. FA is a non-profit organization. Fiscal sponsorship is a non-profit, for-profit relationship, similar in construct to the public-private relationship.
If the motivations of each side were to be argued in a court of law, Andersen Design would win both arguments- the argument pertaining to Andersen Design’s motivations and the argument pertaining to the interpretation given herein of Fractured Atlas’s real motivations for rejecting Andersen Design. I argue that Fractured Atlas believed we were non-compliant to rules that govern a non-profit, but legal relationships between two differently structured entities are not intended to transform one into the other.
When Fractured Atlas advised that we change our primary purpose to a school or a museum, they forbid us to teach the very thing that from my point of view, we need to be teaching, how to make the hundreds of designs in our line, excepting Fractured Atlas would allow us to teach the public how to make our original, proprietary glazes that are as much a part of the Andersen Design brand as is using production as an art form, adding suggested denigration of our brand to defamation of our brand. Our brand is our business asset.
According to Wikipedia, we need an academic journal to publish an article about Andersen Design affirming that our production is used as an art form to establish the living truth that ordinary people understood when they spontaneously referred to our product as art at the moment when Andersen Design products appeared in the marketplace in the 1950s. One might ask what political force motivates that attitude?
The Industrial Partnerships Act repurposes public education as industrial training. Conversely, Andersen Design repurposed industry as a means to education and development in art and science. The Industrial Partnerships Act legitimizes the use of public school facilities as on-the-job training facilities. Andersen Design used our business facilities as an educational, design, and research facility. It is the end goal of our funding objectives to establish such a facility that can train others to make our line of products in their independent means of production owned by the producers and designers- ie designer-craftsmen to benefit the continuance of an engaging work process for future generations. The times are absolutely ripe for it, as remote work disperses centralization and calls for the business in a home environment.
The Alternative Precedent Of The Maine Technology Institute
If in this imaginary lawsuit, Andersen Design’s case can be used to establish a precedent in defining the line of separation of for-profit and non-profit purposes, the precedent set by the Maine Technology Institute could be used to counter it.
15302. Maine Technology Institute
1. Establishment. The Maine Technology Institute, as established in section 12004‑G, subsection 33‑D, is a nonprofit corporation with public and charitable purposes. The duties, activities, and operations of the institute are within the provisions of the federal Internal Revenue Code, Section 501(c)(3).
[PL 1999, c. 401, Pt. AAA, §3 (NEW).]
2. Purpose. The institute, through a public and private partnership, shall encourage, promote, stimulate and support research and development activity leading to the commercialization of new products and services in the State’s technology-intensive industrial sectors to enhance the competitive position of those sectors and increase the likelihood that one or more of the sectors will support clusters of industrial activity and to create new jobs for Maine people. The institute is one element of the State’s economic development strategy and will contribute to the long-term development of a statewide research, development, and product deployment infrastructure.
That is a good description of what Andersen Design has been doing since the 1950s.
Given that MTI’s purpose is approved by the IRS and of no small consequence, that MTI is a public-private charity chartered by the Maine State Legislature, complete with a private board that can own intellectual property rights and can realize a private profit from its activities, and is, in short, larger and more powerful than Andersen Design, in this imaginary lawsuit, the courts would give weight to the precedent set by MTI and dismiss the precedent set by Andersen Design.
But this story has a twist!
I am incorporating the precedent set by MTI as the non-profit purpose in an application for 501(3)© status for the Andersen Design Museum of American Designer Craftsmen, a project that is still under development, in which the museum will be set up to act as a fiscally sponsor.
This presents the possibility that the application will be rejected by a bureaucrat unaware of the MTI precedent, as a violation of the corporation is not organized for and shall not be operated for profit, If that were to happen, things could get very interesting from there. Imagine.
On the other hand, as the old saying goes- if you can't beat them- join them!
Repurposing can be a two-way street. State programs designed to benefit the state's targeted sector can be repurposed as templates for delivering equal benefits to the state's untargeted sector. The museum 501(3)(C) application will be a litmus test. If the application is IRS approved on the same terms as the MTI purpose is IRS approved, the museum and other organizations can be set up to benefit the untargeted sector and provide funding opportunities to the grassroots entrepreneurial sector of the economy and seed the growth of a new middle sector of the economy. That's social justice!
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