Ross: Is Patagonia’s sale to a non-profit shameless exploitation of a tax loophole?

Recently, the owner of Patagonia – the makers of those super-comfortable $35 boxer briefs – announced he would donate the whole company to a new non-profit organization that he set up. And this organization will collect and spend the company’s profits – on “social welfare.”

That arrangement makes the transaction tax-free. No capital gains on the appreciated value of the company; no gift tax on the donations to the non-profit.

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Sounded pretty noble – until Axios covered the story under the headline: “The Ultimate Billionaire Tax Dodge”

Which suddenly made it sound a little sleazy.

Axios reported that Patagonia was the second company in the past year to do this – the other being Tripp Lite, which makes electrical devices, and was also donated to a non-profit set up by its owner, a transaction that was also tax-free.

This is all completely legal under the IRS rules which grant tax exemptions to “Social Welfare Organizations.”

The question is whether this is truly a good thing or a shameless loophole.

Well, according to the IRS, these non-profit social welfare organizations must, “further the common good and general welfare of the people of the community.”

And to achieve those goals, they are allowed to lobby congress. Ah! There’s the loophole!

Axios clearly suspects that these new social welfare organizations are going to be knee-deep in lobbying. Patagonia on the left, and Tripp Lite on the right.

But I say we give them a chance!

Because it could be a great demonstration of the ingenuity of the private sector.

With the number of billionaires we’ve spawned, I can see social welfare organizations solving so many social problems that government welfare programs– and the bureaucracy that goes with them – would no longer be necessary.

Housing for the homeless would appear on privately-purchased land donated by Patagonia. Drug treatment centers would sprout up courtesy of Tripp Lite.

These profit-funded non-profits could remove graffiti, powerwash the sidewalks, build sterilized and supervised public bathrooms – and we would reward them by purchasing their products, and posting hearts on Twitter.

And yes, if these organizations promote something you hate, you should be free to boycott their products.

Especially if they choose to spend their social welfare budgets on political lobbying because that’s just using their untaxed wealth to shell each other while the problems go unsolved.

Instead of trying to manipulate politicians – who’ve proven they can’t agree – why not go around them and solve these problems yourselves!

Pay for daily graffiti removal. Build permanently-affordable housing on private land. Provide detox on demand. I would post so many Twitter hearts! But if you’re in it just for the fight – I’m not buying your stuff anymore. No matter how comfortable your briefs are.

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