This seems great and I’m glad you are actually making progress on work, this is an important project!
Question 1:
Although the US accountant and the UK lawyers were quite optimistic, I ended up taking the Dutch route.
I’m confused why an approach involving a US and UK entity isn’t being focused on, if it’s at all promising. It seems like tax efficiency is a huge consideration. Will this be tax deductible to an American or UK EA?
I’m unsure, but it seems like tax was talked about here, do I understand that the update in this post we are reading, supercedes these ideas in that past comment?
Thanks for all your work on this! I agree with Charles that it would be worthwhile to check whether this would be a legitimate charity in the US and UK.
Personally, I think the old, “refund” version (where one can easily recoup 50% of one’s donations) is likely to be much more impactful than the new “bread fund” version.
To me, the bread fund version feels like a last resort on the order of asking relatives for help, while the refund version feels like something you can rely on. Most people are risk averse with respect to their personal finances, and I think the (perceived) uncertainty of going through individual funders would feel significant to most people.
I’m thinking about a case like an emergency fund that there’s a 10% chance you need to use at some point during the year. Personally, I wouldn’t want a 10% chance of needing to rely on the bread fund. However, I would be happy with a 10% chance that I need to reverse some of my donations.
In some sense, the refund version allows one to donate aggressively and then “undo” some of the donations later if necessary. This seems like it more directly encourages/enables donations.
Have you run a poll to see how people feel about the two versions?
To me, the bread fund version feels like a last resort on the order of asking relatives for help, while the 50% version feels like something you can rely on. Most people are risk averse with respect to their personal finances, and I think the (perceived) uncertainty of going through individual funders would feel significant to most people.
I definitely could see the optics being a problem.
We will cap at 50%, and I have edited the post to reflect that. Does that change anything for you? Does the number of available funders matter to you?
Donors will not contact individual funders. They’ll come to us. We’ll maintain a ledger where we keep track how much money each person has earmarked for the emergency fund. Based on that, we will ask funders to donate. What part are you uncomfortable with? The fact that funders can misuse the earmarked funds?
Have you run a poll to see how people feel about the two versions?
I think there’s just something that feels less reliable about individual, perhaps anonymous funders rather than an official, professional organization.
For example, one could worry about applications taking a long time to process because it takes time to coordinate with the individual funders who are volunteer and not employees. Or people might have concerns about giving bank info to the funders (or transferring large amounts of money some other way.)
But if Basefund handles everything and the funders just feel like a detail that’s happening behind the scenes, this would be less of a concern.
Also, I was unclear, but I meant to say that the “refund version feels like something you can rely on.” Sorry about that, I’ve edited to clarify. But I understood that in both cases it’s capped at 50%.
I’m confused why an approach involving a US and UK entity isn’t being focused on, if it’s at all promising.
Besides constraints on time and budget, the structure inspired by bread funds has a few large advantages detailed in the post.
Will this be tax deductible to an American or UK EA?
The original plan was to register the charity in the Netherlands and get initial funding from Dutch citizens. Then, if it appeared more funding was needed, we would apply for charity status in the US or the UK.
In the new plan, donations will not be taxed in the UK or US, or in any of the countries I looked at.
I’m unsure, but it seems like tax was talked about here, do I understand that the update in this post we are reading, supercedes these ideas in that past comment?
That’s right.
The design of this seems really different than the original design mentioned, which allows a person to take back their original funds. This has major structural differences, as mentioned here. Is this correct and do you have any comments?
Not entirely. The design is different, but we still cap recoupments at 50% of total donations. I forgot to mention that in the post, and I’ll correct it.
Thank you for this initiative. I am sure there are jurisdictions that can incorporate this program. For example, in Czechia, it takes “two afternoons” to register an organization. There is only an online form (for a foundation, for an institute you also have to go to the post office). You need 3 persons and about $300. There are a few types of orgs. A foundational fond can be the best option for you because it gathers assets (used for socially or economically beneficial purposes) but does not need to make profit (what a foundation should). You an also look into an institute, that can act beneficially in addition to using its assets for such purpose. Feel free to contact CZEA if they have some legal advice, could possibly help you with registering, and are aware if donations from EU/etc are tax-deductible. Also, Charity Entrepreneurship is advising its charities in setting up orgs in different countries and has a financial housing (“Players Philanthropy Fund (Federal Tax ID: 27-6601178), a Maryland charitable trust”) for its incubated organizations. I suggest that you chat with CE.
If you want a story, there was someone who knew about EA for many years but was not very connected with the community. At their place, due to the current war, one of their family members was injured by a shooting. The person at the time did not have the funds to pay the overwhelmed doctors for the operation. They asked 2 EAs and they did not give them the funds. So, they asked several family members to each contribute a fraction of the cost.
This person has donated their skilled time over several months to an EA-related project but was generally not in the position to donate funds. A question can be if this fund should also compensate people for their time, for example at the rate of the employment they could get instead of EA volunteering (or a rate that volunteers in EA doing this task would generally get, purchasing power adjusted or unadjusted) or somehow by others’ (comparably skilled/counterfactually or directly beneficial) time.
Then, I suggest that there is some checking for the counterfactuals. For example, if the person gets the funding, does it mean that a patient in a greater need of care gets deprioritized (or, systemic discrimination in education perpetuated, research of affluent persons’ issues prioritized over that of global health solutions, …)? Or, will the person be able to find funding elsewhere (family, friends, local community institution, employer/school, …) (I suggest that they have to sincerely attempt to approach all other reasonable sources before applying for/getting a refund)? And if so, what would the alternative funders sacrifice (for example, if their family forgoes investing into a green tech venture, or school funding a student who is struggling otherwise) and what the dynamics and reputational effects would be (e. g. employer loses interest in following the employee’s advice on impact/more donations because they see that it can cause financial issues, a school loses interest in EA-related ventures because the subjective perception of ‘effortless prestige’ of the students is lost).
Setting up a non-profit is relatively easy. Registering a non-profit as a tax-exempt charity is more challenging. Tax-exemption of charities is not something that is coordinated at the EU level, unfortunately.
Would the following structure be possible? (Apologies if this idea has already been considered.)
Your organization allows EAs to register their donations and then later apply to “refund” up to 50% of them. When someone applies, they receive a refund in the form of a grant from an established non-profit like OpenPhil. Essentially, this lets people apply for guaranteed transitional/emergency funds and uses donation history to verify that the person is aligned and not trying to game the system.
Since the original donation still goes directly and fully to the charity, there should (hopefully) be no legal issues. However, this proposal would require the insurance pool to be funded by something than the “refundable” donations.
The only “gaming” of the system that one could do here would be to essentially force the pool to do a 1-for-1 match of any donation. (By donating, refunding 50%, donating that 50%, refunding 25%, etc.)
I suspect that tax deductability might be very important. I know at least one EA org that was having significant trouble with obtaining funding until it obtained tax deductability.
Glad to see this idea come to life, thank you for working on it! Many of us understand the temptation to hold back more than we ought to, due to concerns about unforeseen financial reversals, some of which are not conventionally insurable. If implemented well, Basefund sounds likely to encourage marginal donations in excess of its costs, and help individuals at difficult hinges in life.
Sounds like you’ve done a lot of homework and this is workable in a Dutch context. Best wishes to you, and I’ll drop you an email about possibly participating.
If it were to expand to the U.S., having support that is formulaically tied to past donations would be difficult. However, one could envision a model that achieves both tax deductibility for donors and tax exemption to grant recipients, and the economic benefit would be significant compared to individual gifts (which are tax-free to the recipient but not tax-deductible to the donor). The key would be a well-defined mission and charitable class of potential recipients, as discussed here, and a layer of discretion at the board level between donor and recipient.
One example of a U.S. public charity that supports individuals in financial hardship is ModestNeeds. Their program is innovative, although for several reasons it’s unlikely to meet the high bar of a “top charity”. Nevertheless, they are worth a look as general inspiration for your project, as it lets funders recommend individual grants (where the grantee is anonymous but their circumstances are described) without formally earmarking donations.
I understand that this is no longer relevant to your plans, but I’m curious about this:
Unfortunately, the result of the vooroverleg was that the charity as described above cannot be registered in the Netherlands. The main reason for this is that those who would directly benefit directly from the charity (the donors) are relatively well-off.
I’m used to the US landscape, where lots of organizations serving the well-off, from private schools to symphony orchestras, are nonprofits that take tax-deductible donations and have tax-exempt status. Is that not the case in the Netherlands?
We have those as well. I am still a bit out of my depth here, but I believe the rules are stricter when it comes to cash transfers than when comes to providing education. The lawyer I consulted did not feel the agency’s position was particularly coherent, though.
For associations like symphony orchestras, tax-exemption does exist but the process is completely different.
This seems great and I’m glad you are actually making progress on work, this is an important project!
Question 1:
I’m confused why an approach involving a US and UK entity isn’t being focused on, if it’s at all promising. It seems like tax efficiency is a huge consideration. Will this be tax deductible to an American or UK EA?
I’m unsure, but it seems like tax was talked about here, do I understand that the update in this post we are reading, supercedes these ideas in that past comment?
Question 2:
The design of this seems really different than the original design mentioned, which allows a person to take back their original funds. This has major structural differences, as mentioned here. Is this correct and do you have any comments?
Thanks for all your work on this! I agree with Charles that it would be worthwhile to check whether this would be a legitimate charity in the US and UK.
Personally, I think the old, “refund” version (where one can easily recoup 50% of one’s donations) is likely to be much more impactful than the new “bread fund” version.
To me, the bread fund version feels like a last resort on the order of asking relatives for help, while the refund version feels like something you can rely on. Most people are risk averse with respect to their personal finances, and I think the (perceived) uncertainty of going through individual funders would feel significant to most people.
I’m thinking about a case like an emergency fund that there’s a 10% chance you need to use at some point during the year. Personally, I wouldn’t want a 10% chance of needing to rely on the bread fund. However, I would be happy with a 10% chance that I need to reverse some of my donations.
In some sense, the refund version allows one to donate aggressively and then “undo” some of the donations later if necessary. This seems like it more directly encourages/enables donations.
Have you run a poll to see how people feel about the two versions?
I definitely could see the optics being a problem.
We will cap at 50%, and I have edited the post to reflect that. Does that change anything for you? Does the number of available funders matter to you?
Donors will not contact individual funders. They’ll come to us. We’ll maintain a ledger where we keep track how much money each person has earmarked for the emergency fund. Based on that, we will ask funders to donate. What part are you uncomfortable with? The fact that funders can misuse the earmarked funds?
Will do!
I think there’s just something that feels less reliable about individual, perhaps anonymous funders rather than an official, professional organization.
For example, one could worry about applications taking a long time to process because it takes time to coordinate with the individual funders who are volunteer and not employees. Or people might have concerns about giving bank info to the funders (or transferring large amounts of money some other way.)
But if Basefund handles everything and the funders just feel like a detail that’s happening behind the scenes, this would be less of a concern.
Also, I was unclear, but I meant to say that the “refund version feels like something you can rely on.” Sorry about that, I’ve edited to clarify. But I understood that in both cases it’s capped at 50%.
This will indeed be the case!
Besides constraints on time and budget, the structure inspired by bread funds has a few large advantages detailed in the post.
The original plan was to register the charity in the Netherlands and get initial funding from Dutch citizens. Then, if it appeared more funding was needed, we would apply for charity status in the US or the UK.
In the new plan, donations will not be taxed in the UK or US, or in any of the countries I looked at.
That’s right.
Not entirely. The design is different, but we still cap recoupments at 50% of total donations. I forgot to mention that in the post, and I’ll correct it.
This sounds really cool, and is also excellent for my personal brand by association.
Thank you for this initiative. I am sure there are jurisdictions that can incorporate this program. For example, in Czechia, it takes “two afternoons” to register an organization. There is only an online form (for a foundation, for an institute you also have to go to the post office). You need 3 persons and about $300. There are a few types of orgs. A foundational fond can be the best option for you because it gathers assets (used for socially or economically beneficial purposes) but does not need to make profit (what a foundation should). You an also look into an institute, that can act beneficially in addition to using its assets for such purpose. Feel free to contact CZEA if they have some legal advice, could possibly help you with registering, and are aware if donations from EU/etc are tax-deductible. Also, Charity Entrepreneurship is advising its charities in setting up orgs in different countries and has a financial housing (“Players Philanthropy Fund (Federal Tax ID: 27-6601178), a Maryland charitable trust”) for its incubated organizations. I suggest that you chat with CE.
If you want a story, there was someone who knew about EA for many years but was not very connected with the community. At their place, due to the current war, one of their family members was injured by a shooting. The person at the time did not have the funds to pay the overwhelmed doctors for the operation. They asked 2 EAs and they did not give them the funds. So, they asked several family members to each contribute a fraction of the cost.
This person has donated their skilled time over several months to an EA-related project but was generally not in the position to donate funds. A question can be if this fund should also compensate people for their time, for example at the rate of the employment they could get instead of EA volunteering (or a rate that volunteers in EA doing this task would generally get, purchasing power adjusted or unadjusted) or somehow by others’ (comparably skilled/counterfactually or directly beneficial) time.
Then, I suggest that there is some checking for the counterfactuals. For example, if the person gets the funding, does it mean that a patient in a greater need of care gets deprioritized (or, systemic discrimination in education perpetuated, research of affluent persons’ issues prioritized over that of global health solutions, …)? Or, will the person be able to find funding elsewhere (family, friends, local community institution, employer/school, …) (I suggest that they have to sincerely attempt to approach all other reasonable sources before applying for/getting a refund)? And if so, what would the alternative funders sacrifice (for example, if their family forgoes investing into a green tech venture, or school funding a student who is struggling otherwise) and what the dynamics and reputational effects would be (e. g. employer loses interest in following the employee’s advice on impact/more donations because they see that it can cause financial issues, a school loses interest in EA-related ventures because the subjective perception of ‘effortless prestige’ of the students is lost).
This was really helpful and had in depth knowledge about CZ entities, thanks!
Setting up a non-profit is relatively easy. Registering a non-profit as a tax-exempt charity is more challenging. Tax-exemption of charities is not something that is coordinated at the EU level, unfortunately.
oh, I see where the issue may be.
Just to clarify: You were funded directly by CEA rather than through EA Funds?
Nope, fixed.
Would the following structure be possible? (Apologies if this idea has already been considered.)
Your organization allows EAs to register their donations and then later apply to “refund” up to 50% of them. When someone applies, they receive a refund in the form of a grant from an established non-profit like OpenPhil. Essentially, this lets people apply for guaranteed transitional/emergency funds and uses donation history to verify that the person is aligned and not trying to game the system.
Since the original donation still goes directly and fully to the charity, there should (hopefully) be no legal issues. However, this proposal would require the insurance pool to be funded by something than the “refundable” donations.
The only “gaming” of the system that one could do here would be to essentially force the pool to do a 1-for-1 match of any donation. (By donating, refunding 50%, donating that 50%, refunding 25%, etc.)
I suspect that tax deductability might be very important. I know at least one EA org that was having significant trouble with obtaining funding until it obtained tax deductability.
Glad to see this idea come to life, thank you for working on it! Many of us understand the temptation to hold back more than we ought to, due to concerns about unforeseen financial reversals, some of which are not conventionally insurable. If implemented well, Basefund sounds likely to encourage marginal donations in excess of its costs, and help individuals at difficult hinges in life.
Sounds like you’ve done a lot of homework and this is workable in a Dutch context. Best wishes to you, and I’ll drop you an email about possibly participating.
If it were to expand to the U.S., having support that is formulaically tied to past donations would be difficult. However, one could envision a model that achieves both tax deductibility for donors and tax exemption to grant recipients, and the economic benefit would be significant compared to individual gifts (which are tax-free to the recipient but not tax-deductible to the donor). The key would be a well-defined mission and charitable class of potential recipients, as discussed here, and a layer of discretion at the board level between donor and recipient.
One example of a U.S. public charity that supports individuals in financial hardship is ModestNeeds. Their program is innovative, although for several reasons it’s unlikely to meet the high bar of a “top charity”. Nevertheless, they are worth a look as general inspiration for your project, as it lets funders recommend individual grants (where the grantee is anonymous but their circumstances are described) without formally earmarking donations.
I understand that this is no longer relevant to your plans, but I’m curious about this:
I’m used to the US landscape, where lots of organizations serving the well-off, from private schools to symphony orchestras, are nonprofits that take tax-deductible donations and have tax-exempt status. Is that not the case in the Netherlands?
We have those as well. I am still a bit out of my depth here, but I believe the rules are stricter when it comes to cash transfers than when comes to providing education. The lawyer I consulted did not feel the agency’s position was particularly coherent, though.
For associations like symphony orchestras, tax-exemption does exist but the process is completely different.
Interesting. Thanks for sharing your findings and experiences!
Nothing to add, I just want to comment that this is a wonderful initiative. Thanks for setting this up!