Is this some kind of loophole?

Start a non-profit with a noble mission. Get $130.5 million in donations without giving out any shares. Make a product. Renounce non-profit mission. Convert to a for-profit.

The consequence of renouncing non-profit status is that the $130.5m in donations is characterized as taxable income to the corporation, and the IRS can impose penalties and interest dating back to the formation of the corporation (i.e., it can pierce the non-profit veil).

So, not a loophole in the sense that the entity will be subject to tax. And saavy donors will usually have a conversion clause that either converts their donation to a capital contribution in the event that non-profit status is lost, or rescinds their donation. But that would require having donors that don't believe they know everything about everything and poo-poo safeguards like that...

The $130m in tax and penalties are likely puny compared to the value of the equity the original donors could have gotten.

I think if Elon can convert his donations into equity, he wouldn’t have sued.

> The consequence of renouncing non-profit status is that the $130.5m in donations is characterized as taxable income to the corporation

Or can they convert to equity, then it's not income.

No, if it was characterized as a donation on the non-profit's financials, after the loss of non-profit status the amount will be treated as revenue unless the donation legalese contained a conversion clause.

But conversion clauses are extremely rare. 99.9999% of the time, if a donor is concerned that an entity will do something to jeopardize or deliberately lose its non-profit status, they simply won't make the donation.

This seems like something that works exactly once ever and every non-profit will be treated with extreme scrutiny from now on.

For about two weeks, until everyone forgets.

Hell no, the IRS doesn't forget something like this.

More than the money, they were able to attract top talent and avoid regulations and senate hearings by calling themselves OpenAI. Genius move even by scamster standards.

When accused of copyright infringement, they could also say, "But we are a non-profit, we are just advancing the progress of science!"

It's not like a for-profit cannot do scientific research.

Yes, but...

> The fair use statute itself indicates that nonprofit educational purposes are generally favored over commercial uses.

[0] https://copyright.columbia.edu/basics/fair-use.html

> An OpenAI spokesperson told Fortune and Reuters that the company's non-profit arm is "core to our mission and will continue to exist," as OpenAI stays "focused on building AI that benefits everyone."

Not exactly a denial that the nonprofit board is going to lose all its governance powers and become a rump (just a shell for enough equity to provide a fiduciary defense to fend off the inevitable lawsuits).

Oh good, the company that can't even align its people and product to its non-profit mission is also telling you they'll eventually align superintelligence and surely not be outmaneuvered.

"Currently, we don't have a solution for steering or controlling a potentially superintelligent AI, and preventing it from going rogue"[0] -OpenAI

Ya don't say?

[0]https://openai.com/index/introducing-superalignment/

Glad they're finally taking the mask off. Hope the IRS clawsback as much as they can

Who knew that OpenAI really meant "Open for business AI"?

So do non 501c3s mean nothing now? (I guess you could argue that they never meant much?) Is bootstrapping as a nonprofit intended to reduce tax burden? What’s the point of being a non-profit?

> What’s the point of being a non-profit?

In this case, to trick everyone into thinking OpenAI is a "good guy".

Steal everyone's copyrighted materials under the guise of "fair use", process them, then go full capitalism as if nothing happened. First benefit is that they don't have to pay for any stolen content, second - all competitors will be left in the dust, since they can't easily replicate this trick.

I'm guessing that Sam Altman will get a few shares, when OpenAI drops the non-profit structure. Always thought it strange that he had no shares, especially considering his VC background.

Sam doesn't get paid on the money OpenAI makes, I suspect he gets paid on the money OpenAI spends.

"Didn't see this coming"

- No one ever

Really did not in the first year or two.

Guess you never met sam altman

We should nationalize OpenAI as punishment for the flagrant copyright violation they've taken part in. Either give every aggrieved author points in the company, or fine them for something like the GDP of the entire planet (round up - to maybe fifty trillion dollars?) and establish a fund that pays for global education and the production of new works.

They literally are thieves of the world's entire intellectual output. "For training the model", they say.

Yeah, there's a lot of bullshit going around.

>They literally are thieves of the world's entire intellectual output.

I recall hearing these accusations two decades ago about Google and particularly Google Books. And here I am, an average Joe on the internet, being able to get in a few minutes the specific information I am looking for about any subject, which would have taken me a few days of perusing a library and its databases. If this is thieving, to me it's as if Robin Hood came to town.

Famous grifter seeks grift. News at 11.

We knew this would happen after the board tried to prevent it and failed.

Daily reminder:

"As we get closer to building AI, it will make sense to start being less open. The Open in OpenAI means that everyone should benefit from the fruits of AI after its built, but it's totally OK to not share the science (even though sharing everything is definitely the right strategy in the short and possibly medium term for recruitment purposes)."

-Ilya Sutskever (email to Elon musk and Sam Altman, 2016)