In a recent twitter poll, my followers were most curious to know why DonorSee is not an official 501c3 nonprofit (like most humanitarian organizations). Because part of our mission is to provide unparalleled transparency to our donors, I’m going to explain our motives in the most straightforward way possible.
The simple answer is: forming DonorSee as an LLC was in the best interest of the poor people we’re trying to help.
Some may think that we made DonorSee with this structure because we’re trying to somehow monetarily benefit. The truth is that I, the founder, spent 3 years living in the poorest country on the planet surviving on just $600 a month. And the only reason I came back to America was so I could launch DonorSee and expand my efforts to help the poor globally.
Some may think that we forewent the 501c3 model because it’s a lot of paperwork and has expensive legal fees. The truth is that I already started and still run my own official 501c3 charity from three years ago called HOWMs. I am very familiar with the process and would not be intimidated to go through it again.
So, just to emphasize one more time, DonorSee was formed as an LLC intentionally. It was a calculated decision based on one parameter: which model would provide the best model to help the poor. Here are 7 reasons why we chose to forgo the traditional route:
(1) The majority of Americans don’t care about tax deduction
Depending on which state you live in, up to 80% of US citizens don’t line item their taxes, which makes tax deduction meaningless for the vast majority of Americans.
(2) Tax deduction is nearly irrelevant for companies wanting to donate
It depends on the specific formation of the company, but when a company spends money on an advertisement, or when they donate a percentage of their income to a cause, in both cases they are deducting money from their profits that will no longer be taxable. There are some advantages for certain company formations to give through a 501c3, but nothing remarkable.
Companies wanting to give regularly on DonorSee can signup here: officialdonorseesponsor.com.
(3) Tax deduction is irrelevant for international donors
In less than a year, DonorSee has grown to over 50 different countries (and we continue to expand). Tax deduction only matters to the citizens of one of those 50+ countries (the U.S.).
(4) A 501c3 status doesn’t magically prevent fraud
Understanding this requires some international experience. But, just because an organization has filed a bunch of paperwork and paid a bunch of lawyers, does not mean it’s impossible for them to commit fraud nor does it mean that they are less susceptible to fraud. A 501c3 status isn’t magic.
Back when I was building houses for widows in Malawi, I would go to a local shop to buy nails and door frames. When I had my things, the person checking me out would say “Your total is $50, for how much would you like me to make out the receipt?” In other words, his assumption about a white person working for a charity was that I would ask him to write the receipt for a higher amount and then pocket the difference. This happens all the time and most commonly to charities with a 501c3 status. Manufacturing receipts is one of many common fraudulent practices in developing countries.
(5) A 501c3 status creates a gluttony of expensive paperwork
There is a whole industry of lawyers and accountants whose livelihood depends on the overbearing regulations required to operate and work with nonprofits. Often an organization will dedicate an entire department just to ensure that regulations are in line with government protocol. We find the cost of adhering to these regulations do not justify the benefits of tax exemption, especially when considering the above reasons.
(6) We believe there are better ways to regulate our funds apart from government intervention
When you buy something on eBay, how do you know you’re going to get what you purchased? When you book an Airbnb, why are you so comfortable staying at a strangers house? In every case, these organizations have found a way to engineer trust between users without government intervention. It’s not going to look identical to anything that currently exists, but the more users we get and the more data we collect, the better we’ll be able to generate user trust and buy-in.
(7) Our model better allows for expediency and flexibility
This is not so much the last reason as it is the conclusion of the whole blog. By forgoing the traditional route of earning a 501c3 status we are able to get money to places faster and cheaper. If a little girl is attacked by a crocodile and needs immediate medical attention, there needs to be a mechanism for getting her aid quickly and efficiently.
Now, there’s an app for that. And we wouldn’t have it any other way.
Here is a 3 minute video on why DonorSee was set up as an LLC instead of a 501c3, called “The Case Against Tax-Exempt Charities”: