Jerome Hughes (District of Columbia), Envisioning §501(c)(3) Social Impact Cooperatives as a Strategy to Address Poverty, 53 Cumb. L. Rev. 398 (2023):

Section 501(c)(3) of the Internal Revenue Code (“I.R.C.”) provides federal tax exemption to nonprofit organizations that are organized and operated exclusively for exempt and charitable purposes, including the relief of the poor. Cooperative enterprises address poverty by generating a range of social and economic benefits, for example, by deepening democratic participation, enhancing human and intellectual capital, creating employment, and generating positive externalities to the community and public. Notwithstanding these benefits, cooperatives serving low-income populations are not currently recognized as tax-exempt charitable organizations and have unique challenges in financing and entity formation. In order to expand the entity forms available for reducing poverty and address formation and financing challenges, this Article proposes an I.R.C. § 501(c)(3) inclusion for social impact cooperatives—cooperatives that (i) contain no fewer than seventy-five percent of members who qualify as poor and economically disadvantaged, (ii) restrict fifty percent of their net earnings and 100% of their donations to a nonprofit internal account, and (iii) are certified annually by a social impact monitoring nonprofit. 

This I.R.C. § 501(c)(3) inclusion for social impact cooperatives builds upon a broad movement in policy and practice linking social purpose cooperatives with nonprofit organizations. This Article situates I.R.C. § 501(c)(3) social impact cooperatives within contemporary arguments related to social enterprise, nonprofit organizations, and stakeholder governance and demonstrates how modest updates to charitable doctrinal limitations—including private inurement, private benefit, commerciality, and the preservation of nonprofit assets—can enable social impact cooperatives to fit comfortably within the I.R.C. § 501(c)(3) tradition. Federal inclusion under I.R.C. § 501(c)(3) would enable social impact cooperatives to achieve important exempt and charitable purposes related to poverty reduction.

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