What does non-profit mean?
Non-profit is a designation of purpose and intention. It covers many different activities and is a pronouncement of intent. One of the categories of “non-profit” by IRS definition is charitable (which in some states specifically includes cultural); another is educational.  

What is a non-profit corporation?
It is an incorporated legal entity whose primary purpose is the accomplishment of specifically qualified goals, (i.e., fitting IRS requirements) and benevolent to American society in general, rather than earning profits for its owners or stockholders as its primary purpose.

Religious and educational institutions, hospitals, political and public service organizations, all charities, and a variety of other entities function within the non-profit arena, under a variety of classifications. LiveWired is a 501(c)(3) organization, which covers cultural and/or educational intentions.

How does it differ from a regular profit-making corporation?
The key difference is that it cannot be owned; therefore it cannot be sold, neither in its entirety nor through stock shares. It cannot exist primarily to benefit its board of directors or members and most important, it is subject to a different set of IRS criteria regarding its financial activities, rendering it virtually tax-exempt. 

This tax-exempt status does not make it a tax shelter, although this exemption provides undeniable benefits in regards to operating expenses and income production. But more importantly, 501(c)(3) status offers access to certain funding, services, facilities, etc. that are unavailable to profit-making corporations.  And equally important, the c3 status allows contributors to take tax deductions on funds they provide to the organization.

Tax-exempt does not mean blanket immunity to any and all taxes. State laws regarding issues like property tax, sales tax, etc. will vary from state to state and by municipality.  Social security and other employee-related taxes and fees also remain in effect for non-profits, just like for-profits. The specific responsibilities of the non-profit organization regarding taxes should be clarified with the attorney and/or an accountant who is well acquainted with the IRS regulations regarding 501(c)(3) corporations.
 
Are all contributions to a 501(c)(3) tax-deductible?
All financial contributions are 100% tax-deductible for the contributor, as long as their personal financial circumstances allow them to take contributions as deductions. For example, a person cannot take deductions for contributions that exceed 50% of their Adjusted Net Income in any given year. However, it must be understood that donations of services are not deductible.

Can someone invest in a non-profit corporation?
Since there are no ownership or stock shares, it is not possible to invest in a c3 directly. However, participation can take place within the organization’s various income-producing programs or activities, such as concert series, record labels or marketed products. This occurs consistently in the normal operations of every c3, both formally and informally.  Let’s look at some examples.

A participant offers $50,000 to the c3 to start a record label to issue product that falls within the organization’s artistic purposes. In return, the participant shares in the profits of the record label.
The organization is trying to set up a tour for a performing ensemble. The participant underwrites the tour, guarantees set payments to all of the performers and technical personnel, and covers all travel expenses. In return, the participant keeps all the revenue from the tour, and merchandising rights to product derived from the tour.
A promoter pays the artist fees as a co-presenter of a concert series, and receives 50% of the income from ticket sales. 

In each of these examples, the participant’s profits are subject to taxes, just like any other type of income they may earn. The organization’s income from these endeavors is tax-exempt, as long as the activities are entirely within the organizational purposes. Essentially, these examples are no different from an individual musician (who is “for-profit”) investing in making a CD and turning it over to a non-profit record label to distribute it - or even simpler, from agreeing to perform at a non-profit facility in exchange for a part of the door; or a for-profit booking agency taking on a typical dance company or classical music ensemble.

The individual artists who operate through non-profit organizations basically invest time, energy and sometimes even money in the organization to enable the organization to develop opportunities for that artist to educate, create, and express his or her particular vision – and to derive an appropriate personal (and taxable) income.

How can someone invest in LiveWired’s programs?
Following the same principles as stated above, there are a wide variety of ways that someone could invest in LiveWired programs.

A television channel could be set up within (exact name of TV Network as we’re using it) featuring materials created and /or owned by the investor. 
Livewired TV
 
A restaurant can associate itself with LiveWired for a series of educational or community serving activities that both promote the restaurant in general and draw clientele in connection with specific activities.
 
An independent promoter can affiliate with LiveWired through its Venue/Residency program and offer artists the benefits of documentation and product development, while retaining the door receipts.
An investor can underwrite any of the commerce-based elements contained within the various LiveWired Initiatives, receiving a clearly delineated share of the revenue generated.

There is basically an endless variety of methods in which a for-profit entity or individual could interact with the commerce-based programs contained in the LiveWired plans.

Can a non-profit make money?
As the great line in Citizen Kane goes, “It’s no big thing to make a lot of money...if all you want to do is make a lot of money.”

The answer depends on what one means by making money. Obviously a c3 is allowed to generate income. A major misinterpretation of non-profit is that annual income and expenses are supposed to zero out. But no business can have identical income and expenses in a fiscal year, and certainly not in every year.

So the regulations allow for projections and safeguards that can be quite flexible. Non-profits can end a fiscal year with gigantic surpluses (even in the millions) as long as there’s a balance projected somewhere down the line.  Of course there are auditors, reviewers, CPAs, various regulatory officials and certain standards that must be met in the process when such numbers are at play. When that type of income is involved, it is possible to satisfy the authorities that everything is in proper order as long as the proper records are kept.

Unfortunately, the degeneration and mutation of business ethics and propriety that has been so rampant since the ‘80s has taken hold in the non-profit sector as well.  Salaries, offices, expense accounts, and other accoutrements of contemporary American business have escalated ludicrously. And a small handful of artists – some simply complacent, others disgracefully culpable – have been allowed to share in the booty. Organizations that employ these methods of questionable integrity try to maintain the balance that satisfies the non-profit fiscal requirements with ridiculous expenditures in infrastructure, research, improvements and whatever. This can somehow justify many more millions of dollars being raised than being spent directly on programming, education and whatever other activities are supposed to be the primary purpose of the organization. And it also allows the c3 to operate legitimately at a loss, and thereby justify further salaries and expenditures in the pursuit of more funding.

In no way are we condoning or trying to justify such behavior. It’s abhorrent and hopefully the IRS will crack down on c3s that employ such methodology. I’m citing this behavior (somewhat cynically) to alleviate the misplaced interpretation that too many hold that non-profit corporations cannot make money. As long as the money is utilized to balance the achievement of its purposes and goals, the c3 can earn income; but the income must be generated from related business activity.  

LiveWired is dedicated to operating within the purest and most benevolent methods of non-profit activity to create a viable, self-sustaining context of commerce, education and cultural awareness for its constituency of artists, professionals and socially responsible economic participants.

DISCLAIMER
The materials contained above have been either reprinted or adapted from a chapter on the 501(c)(3) Corporation in Marty Khan’s book Straight Ahead: A Comprehensive Guide to the Business of Jazz (Without Sacrificing Dignity or Artistic Integrity). This information does not constitute legal advice, but is simply to provide basic information and clarify some basic misunderstandings about non-profit organizations and doing business with them. Non-profit laws vary from state to state, and changes in IRS regulations can occur at any time, so advice of legal counsel and/or properly informed accountants should be considered when making investments or contributions to insure that the participant is properly qualified to receive the benefits outlined above.