According to a recent Mixergy interview with founder Casey Fenton, Couchsurfing tried for years and years to be approved as a 501(c)3 organization (basically, a charity) so they could receive grant money to support cultural exchanges. Eventually the IRS gave them a final, non-appealable determination of non-status. Apparently, the cultural exchange aspect was not a strong enough reason when most people probably couchsurf to save money. So their business model was broken, and they had to stop being a non-profit and become for profit, which, at that point, costs $1 million to convert. I presume this is because non-profits must give away their assets to another non-profit if they cease operations. So $1 million in VC dollars plus other investment converted them into a for profit. Alas, not with such great results. I think it is unfortunate the way the meme has spread that the founders were just making a money grab.
I wonder if in the case of an international-by-default internet organisation, there might be some international workaround. Maybe they could have registered the business elsewhere or even physically moved to another jurisdiction. Maybe they could have formally merged with an existing cultural exchange non profit like the various 'year abroad' exchange organisations.
If a for-profit company, quasi-nonprofit or organisation without a well defined status wants to operate as a non profit and they seem to be getting results... It seems a terrible waste not to help that exist, as a society or a legal system or whatnot.
If you have a million to spend on converting from non-profit to something else (or was that contingent on converting into a US for profit?), perhaps there are other options out there. What's the distinction between for profit and non profit in a "favourable" jurisdiction like Isle of Mann or The US Virgin Isles?
Are all tHe employees and assets going to be physically located outside the U.S. too? Otherwise IRS still wants a piece. If it were that easy to avoid taxes everyone would do it.
They may or may not, depending on their domestic status with regards to the country of operation.
Foreign corporations, for- or non-profit can operate in the USA. But they need to register in their state of operation in the U.S. as a foreign corporation. And unless they get a determination of tax-exempt status from the IRS, they would be subject to U.S. corporate income tax with respect to their U.S. operations.
Even U.S. corporations have to register as foreign corporations to operate outside of their state of incorporation.
> and they had to stop being a non-profit and become for profit, which, at that point, costs $1 million to convert. I presume this is because non-profits must give away their assets to another non-profit if they cease operations.
I'm not sure I follow the logic here. If they weren't a non-profit, why would they have to give their assets to a non-profit in order to convert (and why would this cost them $1 million)?
Besides this, I don't see why they would need to convert their status. There are almost no restrictions on running a non-profit, beyond not having "owners" or paying dividend.
The restrictions only apply to non-profits that want to be tax-exempt by the IRS. If you aren't considered charitable enough, then you just pay taxes as usual, but nobody is going to force a shut down of the non-profit because of that.
There is some maximums in the law that make non-profit status problematic. I worked for a non-profit that had for-profit parts because they had exceeded some of the limits. I'm pretty sure (although its been almost 20 years) that the problem was number of employees and their salaries.
The mixergy site is bait and switch to give up your email address for the interview, only to find out you have to pay money for a membership to listen.
I couchsurfed with two different people over one weekend. While strictly speaking I was aiming to save money, my actual experience was very much one of culture exchange.
It is indeed true that when a non-profit converts to a for-profit, they have to "give something back".
http://mixergy.com/interviews/casey-fenton-couchsurfing/