After diving into the joyous waters of Tax Codes, Articles of Incorporation and IRS Determinations, Ming has discovered two potentially key issues that may determine how this agency would be organized in relation to East West Player’s nonprofit status.
Does the agency further EWP’s exempt purpose (as originally determined when the organization incorporated)? An example Ming offers: a halfway house operates a furniture store. The store employs clients in their transition back into the mainstream. Because of this, the furniture store’s ‘for-profit’ activity clearly serves the purpose of the organization’s mission (as defined in the IRS’s definitions of nonprofit activities). To the IRS, EWP falls in the category of ‘education.’ Thus, it appears that if a clear argument is made that the agency would advance our educational purposes, then the creation of an agency as part of our ongoing mission would not raise issues. However, if the IRS deems that the agency does not fall within our original nonprofit purpose as defined by our determination and articles of incorporation, the question of substance comes into play.
Or rather, how substantial will the activities of the agency be in relation to EWP’s other activities (theatre productions, acting/writing courses, youth outreach programs, etc.)? Many nonprofits have for-profit activities (theater concessions & souvenirs, hospital gift shops, etc.). Often, these activities are small in the scope of the organizations major activities. Thus, in the case of activity deemed as “unrelated for-profit” activity in a nonprofit model, less is best. In the case of the agency, however, we have to question how much constraint we are putting on this agency model if it must be tied to a certain (yet-to-be determined) percentage of the organization’s operating budget.
These questions are just beginnings which need to be vetted through legal counsel as well as foresighted business and mission-driven planning. Onward!
--Lisa Tang, East West Players