Do trans justice groups need to be non-profits to succeed?
TJFP is dedicated to supporting local, grassroots groups organizing for trans justice. It’s important to us that these groups center trans leadership. That they’re accountable to the communities they serve. That they think about how racism, economic injustice, transmisogyny, ableism, immigration, incarceration, and other oppressions intersect. But how important is it that they incorporate with the government as 501c3 non- profits or find fiscal sponsors? Does non-profit status help trans justice groups succeed? Or does it make it harder for them to stay true to their missions? (For example, see The Revolution Will Not Be Funded for stories about how becoming a 501c3 and applying for foundation funding has gotten in the way of many groups’ radical work.)
We believe groups should have the freedom to chose for themselves what financial structure works best, based on their own goals. This means we’ve had to answer a similar question for ourselves: what structure works best for a fund that grants money to grassroots groups regardless of whether or not they have non-profit status?
What structure works best for our own goals?
Our first year in 2013, TJFP operated as a non-profit, and after lots of questions, conversations, research, and consultations with lawyers and accountants, we decided to try venturing outside of the non-profit world altogether and incorporate as a small business—a limited liability company (LLC), one of the simpler forms a business can take.
At first, we were feeling pretty happy with our new LLC. Funding groups without non-profit status was simple: they became our consultants in the business of trans justice! And our tax burden stayed low. Then in the summer of 2014 we learned that if co-founder Karen Pittelman kept making donations to the LLC, it might be a red flag for the IRS. Turns out the IRS gets worried when someone keeps putting money into a business and never gets any of it back.
The good news was that Karen had unexpectedly inherited more money and could keep covering TJFP’s operating expenses. The bad news was that this meant we had to revisit the question of our structure and after talking to more lawyers, accountants, and a tax law specialist, we finally found a solution: a non-charitable trust.
One of TJFP’s core values is to keep things as simple as possible for our applicants and grantees. Our application is short and we don’t require any reports. A non-charitable trust still allows us the freedom to give money to groups without forcing them to get a fiscal sponsor or have non-profit status, especially since both will require all kinds of paperwork and reporting.
How does the Trust work?
As a non-charitable trust, we have the freedom to cut checks directly to our grantees, regardless of their non-profit status. Trusts are usually a way for the wealthy to preserve and pass on their assets to the next generation. But we are hoping that a structure that was created to preserve wealth, when guided instead by community leadership, can also become a powerful means of redistributing it.
Non-charitable means we do not claim any charitable deduction for our giving, so our grantees don’t need to have non-profit status. Our tax burden will also remain equally low. And because it’s a trust, the IRS expects us to be giving away money instead of making it.
Will anyone donate if it isn’t tax deductible?
We knew this structure was a risk because it meant that donations to the non-charitable trust would not be tax deductible. What if no one wanted to contribute without a tax deduction? But the support we’ve received for this new model has been off-the-charts. We raised a total of $95,000 through the trust this year!
What about donors who need their contribution to be tax-deductible?
Donors who need their contribution to be tax-deductible can still give to TJFP via our Collective Action Fund at Tides Foundation. This is a donor-advised fund, which is like having a philanthropic bank account at a public charity. When donors contribute this way, they are eligible for a tax deduction because Tides Foundation is a public charity.
Although the majority of our donors chose to give through the trust, some of our biggest gifts still came through our Tides account. This meant that we made about half of our grants through Tides. For those grants, we worked together with the groups to gather the information Tides needed to prove that the funds would be used for the public good. Luckily, we were able to support all the groups with more complicated structures or who did not have non-profit status through the trust. We’re still learning what information we need for both situations, so there were some bumps along the way. But we expect things to be even easier for all our grantees this year, whether they are funded by our trust or by our donor-advised account at Tides.
Why re-invent the wheel?
Creating a new structure isn’t easy. Some have wondered why we’re trying to re-invent the wheel when institutional philanthropy is meant to make being charitable simpler. But we believe that a closer look at institutional philanthropy reveals plenty of reasons to try something new. We’ve written more about this in our 2015 Annual Report (or skip straight to an excerpt here) but it bears repeating: like most American institutions, philanthropy in the United States was designed to protect privilege and property and to shelter assets. For example, until 1969, private foundations weren’t even required to give any money away! And today, foundations only have to spend 5% of their assets a year from which they can also deduct their operating expenses.
The power to decide where grant money goes and who is eligible to receive it has a serious impact on social justice movements. Institutional philanthropy says that the government and wealthy funders get to decide what legitimacy and accountability look like. We think that trans communities are the real experts in trans justice and should have the power to decide for ourselves what gets funded and why.
Another reason to look outside of institutional philanthropy: all the restrictions and requirements it takes for a group to maintain non-profit status and apply for foundation funding keep folks busy. Too busy. Who benefits from this? It seems to us that the answer is people with power who’d like to make sure things stay just as they are.
These are only a few of the questions we are wrestling with and we certainly don’t claim to have all the answers. Since we’re trying something new, there’s still lots for us to learn, and we look forward to sharing all the twists and turns on the road ahead with you. Hopefully together we can begin to build new models that move resources—and the decision-making power over those resources—to the communities that need them most.
How is your money invested?
Our account is at the Self Help Credit Union, based in North Carolina. Their mission is “to create and protect ownership and economic opportunity for all, especially people of color, women, rural residents, and low-wealth families and communities.” This way everyone’s dollars will be doing important work even before that money makes its way to our grantees.
Has anyone ever done this before?
We were inspired by the Fire This Time Fund. They were a Chicago-based giving circle which for five years supported small, local, creative social change projects and developed a similar funding model. We don’t know of anyone who has tried this on a larger, national scale yet. (Please get in touch with us if you’re out there!) We hope our experiment will help open the door for more conversations about alternative funding models that allow grassroots work to flourish.