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MONEY-HANDLING AND TAXES FOR MUTUAL AID GROUPS

Mike Haber, Hofstra Law School

February 9, 2021

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ASSUMPTIONS & EXPECTATIONS��

1. General information, not legal advice

2. Mutual aid is a political project

3. Legal compliance may not be your top concern, but it may be a way to protect your project

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COMMON WAYS MUTUAL AID GROUPS HAVE BEEN HANDLING MONEY

  • Single member’s account (bank account, Venmo, PayPal, Ca$hApp – “personal profile”)
  • Unincorporated association account (bank account, Venmo, PayPal – “business profile”)
  • Fiscal sponsor
  • Incorporated entity (non-profit without tax exemption, LLC, cooperative, etc.)
  • Tax-exempt organization (501(c)(3), 501(c)(4), or other exempt class)

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MONEY COMING THROUGH A SINGLE MEMBER’S ACCOUNT�

A’s Bank/Venmo/

PayPal/Ca$hApp (“personal profile”)

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BENEFITS

QUESTIONS

  • Informal and quick

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CONCERNS

  • Accountability
  • Using Venmo/PayPal/etc.

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  • Do I have to report money I received to the IRS?
  • Will I get a 1099-K? Then what?

MONEY COMING THROUGH A SINGLE MEMBER’S ACCOUNT�

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QUESTIONS

  • Gift tax probably not a concern for you
  • Payments to vendors – may require preparing a 1099-MISC
  • Is there tax on an individual who has money going through their Venmo that gets distributed for mutual aid?
    1. Gross Income is “all income from whatever source derived”
    2. Exception for things that meet the legal standard for “gifts”
    3. Might get a 1099-K
    4. Challenge is a lot has to do with the intent of the person paying

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  • Do I have to report money I received to the IRS?
  • Will I get a 1099-K? Then what?

MONEY COMING THROUGH A SINGLE MEMBER’S ACCOUNT�

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ABC Mutual Aid’s Bank Account/Venmo/

PayPal (“business profile”)

MONEY COMING THROUGH AN UNINCORPORATED ASSOCIATION ACCOUNT�

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BENEFITS

QUESTIONS

  • Free and pretty easy to get an EIN “for banking purposes only” on the IRS website
  • Group control over money
  • Small groups may operate as a 501(c)(3) with no paperwork

CONCERNS

  • Finding a bank or credit union and dealing with their requirements
  • Might get a 1099-K
  • What is the risk to the group or individual members if taxes are not paid?

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MONEY COMING THROUGH AN UNINCORPORATED ASSOCIATION ACCOUNT�

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MONEY COMING THROUGH A FISCAL SPONSOR�

Fiscal Sponsor

ABC Mutual Aid group bank account

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BENEFITS

QUESTIONS

  • Avoid most tax concerns
  • Donations to group may be tax deductible for donors

CONCERNS

  • Fiscal sponsors can be slow, expensive, or hard to work with
  • Is it better to use a fiscal sponsor or to get 501(c)(3) status if you hope to be around for a long time?

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MONEY COMING THROUGH A FISCAL SPONSOR�

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INCORPORATING AN ENTITY TO HANDLE MONEY

Formal Piece of Paper

(plus around $100)

ABC Mutual Aid’s Bank Account/Venmo/

PayPal (“business profile”)

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BENEFITS

QUESTIONS

INCORPORATING AN ENTITY TO HANDLE MONEY

  • Can create clear processes for handling money as a group
  • Directly handle your own money
  • Protects against many kinds of liability for members
  • If a small nonprofit, may operate as a 501(c)(3) with no paperwork
  • If a nonprofit, can hold off on decisions around tax-exemption for some time

CONCERNS

  • Default rules will be hierarchical and rigid
  • Have to deal with the state, disclose a small amount of information to it
  • Still may owe tax unless you obtain tax exemption

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  • What if you incorporate a non-profit but never file for tax exemption?

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BECOME A 501(C)(3) OR 501(C)(4)�

Formal Piece of Paper

(plus around $100)

Could try as unincorporated association, but much harder/rarer

Certain other steps, like adopting by-laws, may be required

1023, 1023-EZ, or 1024 application sent to IRS

ABC Mutual Aid’s Bank Account/Venmo/

PayPal (“business profile”)

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BENEFITS

QUESTIONS

BECOME A 501(C)(3) OR 501(C)(4)�

  • Benefits of incorporation +
  • Donations to group may be tax deductible for donors, so people might be more happy to give

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CONCERNS

  • Default rules will be hierarchical and rigid
  • Some restrictions on 501(c)(3) groups may be troubling
  • Application time-consuming
  • Have to share some info with IRS in a public document
  • Annual compliance requirements
  • The non-profit industrial complex

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  • What does the non-profit industrial complex mean for my mutual aid group?

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THE NONPROFIT INDUSTRIAL COMPLEX�

The Critique

Let’s Make Sure It Doesn’t Apply to Us

Non-profit hierarchy elevates people who are best educated and most privileged, preventing real leadership by the people with the most at stake

Are our mutual aid groups being led (formally or informally) by the people in our communities with the most at stake? Are there barriers to them doing so?

Non-profits are often unwilling to take controversial or militant stances because it may hurt their ability to attract wealthy donors

Are we relying on rich people to fund our mutual aid? Do we ever limit our public positions on things like racism, capitalism, gentrification, or abolition so we don’t offend them?

Movement capture – Non-profits can leech off of social movements and suck out their funds, energy, and power

Are we devoting most of our time trying to keep up with requests for food, or are we clearly connecting our survival programs to broader social change movements?

Tax exemption is a tool for the wealthy to minimize their taxes, not a tool to help the poor

What are our tools for moving money subsidizing? Federal tax exemption exists to further enrich the rich, but are we being equally critical of banks and PayPal?

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Dean Spade, Seattle University School of Law

Robert Caserta, Hofstra University School of Law

Hope Dector & Eve Kausch, Barnard Center for Research on Women

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Mike Haber

Twitter: @mhaber5

Writings: http://ssrn.com/author=2550946