A Legal Alternative to Modern Living in a Changing America

JURIST Senior Editor Edward SanFilippo, University of Pittsburgh School of Law Class of 2013, argues that alternative business models can address societal changes in the US... (His opinions are not intended to represent those of JURIST)
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Americans are restless. A call for change comes from many corners. The Occupy movement emphasized issues of income disparity, and it unexpectedly brought to light an uneasy challenge to constitutional rights, such as the right to peacefully gather. Whether real change will follow the demonstrations remains to be seen. The Tea Party movement seems to have quieted for the moment, even though a number of its preferred politicians have been elected to public office, offering an indication of the movement's at least brief success. The bipartisan mudslinging of this year's election cycle has steadily trickled down from the candidates and elected officials, to the media, blogs and message boards, right on down to the Twitter and Facebook accounts of average citizens. Almost everyone has an opinion—often informed by nothing more than a distortion of facts—and regardless of the point of actual contention, it seems like most are unhappy with the status quo.

From this unhappiness, another quiet movement seems to be growing, a desire to "just get away from it all." For those seeking an extreme solution, intentional communities may provide both the structure and legal protection necessary for a fresh start. According to the Fellowship for Intentional Community, "Intentional Community is an inclusive term for ecovillages, co-housing communities, residential land trusts, communes, student co-ops, urban housing cooperatives, intentional living, alternative communities, cooperative living, and other projects where people strive together with a common vision." Intentional communities are often sought out as a means to join those with "common spiritual or political convictions" and "to find a friendly, caring place to live, away from the isolation of suburban life." According to the Fellowship, thousands of these communities exist around the world in both rural and urban areas, with nearly 2000 in the US alone. As a legal entity, intentional communities have a variety of options for organization; the focus here will be on the most extreme, 501(d) organizations.

According to the tax code, 501(d) organizations are "religious or apostolic associations or corporations, if such associations or corporations have a common treasury or community treasury, even if such associations or corporations engage in business for the common benefit of the members." Like partnerships, limited liability companies (LLC) or S corporations, in a 501(d), "net profits are divided among all members pro rata to their individual tax returns." Unlike these business entities, 501(d) organizations have fewer restrictions on membership and structure, plus some significant benefits as a tax-exempt entity. Unlike a 501(c)(3), a 501(d) has fewer overall restrictions. For example, a 501(d) can engage in any kind of business and all income is free from taxation at the entity level. Additionally, the assets of a 501(d) can be split between the members after dissolution and the organization can maintain its tax-exempt status even while engaging in political activity.

This legal structure was first proposed in Congress as a means of protecting monasteries and other less common religiously based, residential institutions from unfair taxation. The case law relating to 501(d) organizations has been almost entirely focused on tax issues, both in terms of exemption and income. The most recent case is Stahl v. US. However, the exemption requirements are most fully described in the 1983 Ninth Circuit opinion in Kleinsasser v. US:

The only requirements for the exemption are that there be a common treasury, that the members of the organization include pro rata shares of organization income when reporting taxable income and, implicitly, that the organization have a religious or apostolic character. Once this requirement of form is fulfilled, the exempt organization is unlimited as to function. It can farm, ... or engage in manufacturing, or any other business or combination of businesses. It is definitionally impossible for a §501(d) organization to have unrelated trade or business income. If the organization had income that it failed to allocate to its members, it would simply lose its exemption altogether.

Despite these benefits, forming a 501(d) organization creates several challenges, both legal and social. On the legal side, the nature of a 501(d) limits personal autonomy and wealth accumulation. First, most major decisions for the organization must be made collectively, or at least somewhat democratically. Additionally, all members must understand their legal rights individually and within the organization, and their options/limitations if they desire to leave the community. Second, all members' income, even that earned outside the community, must be split equally among the membership. A third legal issue, which carries over into the social issues, is that a group must come together with common social values and have a common religious or spiritual worldview to qualify for the apostolic designation and wish to live simply and collectively for a long-term commitment. In this sense, one of the most challenging aspects may be finding like-minded, hardworking, adventurous families and individuals.

Another challenge is the generation of income. What types of businesses will a community choose to develop? Where will it find capital and investment opportunities to finance these business endeavors, and who will it turn to for professional assistance? Will a community choose a rural or urban lifestyle, and what benefits or challenges are associated with each choice, particularly in reference to business options? None of these are insurmountable challenges, but they must all be addressed to create an environment that facilitates the success of any intentional community.

The most common criticism of this option is that it promotes socialism, or that it is just a utopian, hippy ideal that cannot exist in reality. The reality is, however, that thousands of intentional communities already exist, whether structured as 501(d)s or something else, and their business ventures coexist alongside more 'capitalistic' business organizations. In any event, it seems unlikely that a small segment of society choosing alternative living arrangements will alter the market values of the entire nation; indeed, this is not even the intent. Instead, those who truly want to live off the land in a communal environment, away from the political circus, have the legal protection of a 501(d) organization if they so choose.

Edward SanFilippo, is the Head of JURIST's professional commentary services. He graduated from the San Diego State University, where he earned degrees in religious studies and political science. His interests focus on issues of development, social change and social movements, the intersection between law and religion, human rights and the environment.

The opinions expressed herein are solely those of the author and do not necessarily represent those of JURIST or any other organization.

Suggested citation: Edward SanFilippo, A Legal Alternative to Modern Living in a Changing America, JURIST - Dateline, Jan. 31, 2011, http://jurist.org/dateline/2012/01/Edward-SanFilippo-intentional-community.php.



This article was prepared for publication by Leigh Argentieri, an assistant editor for JURIST's student commentary service. Please direct any questions or comments to her at studentcommentary@jurist.org

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