By hannover-web.com In 2016, OpenAI submitted a request to the IRS to be recognized as a tax-exempt charitable organization, claiming its mission was to “advance digital intelligence in the way most likely to benefit humanity as a whole, without needing to generate financial returns.” However, in recent years, the rise of its for-profit subsidiary has skyrocketed OpenAI’s valuation to $157 billion, raising questions about its nonprofit status.
According to an AP report on October 12, OpenAI’s initial application stated that it did not intend to establish joint ventures with for-profit entities. Yet, it has since formed partnerships and has also claimed it wouldn’t develop commercial products or equipment, committing instead to making its research available for free to the public. OpenAI asserted that its plan was to train an AI agent to tackle various problems, including creating a robot to handle household tasks and developing technology capable of “following complex instructions in natural language.”
Today, however, its offerings, including text-to-image generation, emotion detection, and code-writing chatbots, have vastly exceeded the original technological ambitions.
In a report from September, Reuters indicated that sources familiar with the matter revealed OpenAI is planning to restructure its core business into a for-profit benefit corporation, which would free it from the oversight of its nonprofit board and make the company more appealing to investors.
Experts on nonprofit organizations believe OpenAI has taken steps to align its corporate structure with nonprofit governance rules. Andrew Steinberg, a member of the American Bar Association’s nonprofit committee, noted that OpenAI’s application was quite typical and that changes to plans and structure mean only that they should report it in their annual tax filings, which they have done.
“When the IRS reviewed the application, there was no information indicating that OpenAI’s current corporate structure or its sought-after investment structure aligned with what they originally intended. This is acceptable, as things may have developed differently later on.”
Tax law mandates that funds or assets donated to tax-exempt organizations must be retained for charitable purposes. If such an organization transitions to a for-profit model, it needs to pay fair market value for gifted assets to another charitable organization. OpenAI faces numerous questions regarding which assets belong to the nonprofit, their valuation, whether they include intellectual property, patents, commercial products, and licenses, and what the value would be of relinquishing control of its for-profit subsidiaries. However, most observers believe OpenAI has meticulously structured the relationship between its nonprofit and its other corporate entities to avoid potential complications.
