FIVE-OH-ONE-SEE-THREE Me Please!

To become more legitimate in the eyes of everyone, it was time for TCEV to become an official entity. A legal entity allows us to do more than simply spread our ideas and intentions about seeding an ecovillage here in the region of the Twin Cities; it allows us to actually take the right kind of action to do so. When I identify “right” I am literally talking about rights. Establishing our 501©3 federal non-profit status immediately creates a set of rights, protections, and also requirements that are defined by the state of Minnesota and the U.S. for activities such as owning property, conducting business (or providing a service), and/or investing money. Having a legal entity means that IT can buy the property that a collective of people have made the decision to purchase. A legal entity allows potential lenders to take us more seriously–having tens of thousands of dollars in the bank and some brief credit history will also help that immensely. Protection from liability as well as getting insurance becomes easier and less complex, and as a 501©3 of course, there’s that reduced to $0 tax benefit.

Right now we are in deliberations about the need to establish an LLC that works in concert with our non-profit. Using the non-profit as the vehicle to establish the land and village for the ecovillage may not be the best choice as it means that the “Village” couldn’t technically earn a profit for owners and shareholders. Nonprofits CAN earn income by selling products/services, as long as that income and how it is earned is connected to its purpose. It can also, obviously, hire employees. The advantage is that it allows us to seek donations once we have a track record of service to the causes we care about.

We’ve learned that communities primarily use 501©3s to own land in order to preserve and protect the land from future development and real-estate speculation. Since the 501©3 doesn’t pay property tax this is also an attractive option, but in order to have a non-profit be the owner of land the IRS requires two tests– it must be organized, as well as operated, exclusively for one or more of the tax-exempt purposes, and will audit the nonprofit’s activities in its first years of operation. Since NO PART of net earnings may benefit any individual it may be hard to go this route. A serious downside to the 501©3 status is that if a community disbands with the nonprofit as its landowner, it may not distribute ANY residual assets to community members. After paying debts all remaining assets must pass intact to another tax-exempt beneficiary.

So in sum, using our nonprofit to potentially purchase land can protect that land from later speculation and development, and can receive tax-deductible donations and grants; exempt from income taxes and property taxes. However, the challenges are that disbanding could mean everyone loses their shirt. It is possible. Ecovillage at Ithaca in Ithaca, NY owns some but not all of its land with its nonprofit. Many use the 501©3 entity for their educational programs.