Thursday, September 14, 2006
Interesting article in the New York Times: Philanthropy Google’s Way: Not the Usual, by Katie Hafner:
The ambitious founders of Google, the popular search engine company, have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming. But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes....
By choosing for-profit status, Google will have to pay taxes if company shares are sold at a profit — or if corporate earnings are used — to finance Google.org.... There are skeptics ... among tax lawyers and other pragmatists familiar with the world of philanthropy. They wonder whether Google’s directors might be tempted to take back some of the largess in an economic downturn. “The money is at the beck and call of the board of directors and shareholders,” said Marcus S. Owens, a tax lawyer in Washington who spent a decade as director of the exempt organizations division of the IRS. “It’s possible the shareholders of Google might someday object, especially if we go into an economic depression and that money is needed to shore up the company.”
Nonprofit firms may not distribute profits to owners but instead must retain them or reinvest them. Nonprofits that are “charitable organizations” under Section 501(c)(3) of the tax code may receive donations from individuals who are allowed to deduct their donations from their income for tax purposes. We argue that the law should not link tax benefits to corporate form in this way. There may be good arguments for recognizing the nonprofit form and good arguments for providing tax subsidies to charities or donors to charities, but there is no good argument for making those tax subsidies available only to charities that adopt the nonprofit form. Consequently, the “for-profit charity” may well be a desirable institution. Currently, no such entity exists, but the reason is surely discriminatory tax treatment; the charitable activities of many commercial firms suggest that in the absence of discriminatory tax treatment for-profit charities would flourish. Current tax benefits for charitable nonprofits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.