“The Only Thing More Expensive Than Education Is Ignorance.” -Benjamin Franklin
This scam has a very special place in my heart, therefore it gets its own article, and the person perpetrating this con will be have a special place in hell reserved all for him. There is a person preying specifically on chiropractors and holistic health practitioners in our country that is telling those unfortunate borrowers to “Start Your Own Non-Profit” so you can qualify for the 10-Year tax free Public Service Loan Forgiveness Program. He is based in San Diego which is why it irks me even more. My first year in business I was in San Diego helping people with student loans and when I would hear chiropractors thinking about using this strategy it made my skin crawl and stomach turn. Truth be told it still does though now with even more frustration.
Starting your own non-profit is fine if that is your dream, or your mission in life, and it is what you want to do full time. I have a number of clients who work full time in their non-profit business who I am helping count their time toward PSLF. One is a big hearted guy who started a non-profit helping homeless veterans in San Diego. He is my shining example of what is possible when you do things the right way, love that guy and his mission.
However, the scam being perpetrated by this chiropractic doctor is telling current for-profit business owners to create a separate non-profit business on the side for the purpose of getting PSLF. Not only that he is saying to run the non-profit from the same brick and mortar location as the for-profit. This is the worst idea you could possibly have and I’m going to tell you all the reasons why.
First, you are creating something with a bad intention. Trying to get tax free forgiveness is a very silly reason to create a non-profit not just because of all the work that it entails but also the confusion that will inevitably arise between what you actually do for a living and what you are trying to do on the side.
What I mean is let’s say you have to give a portion of your services away for free or even for half price in order to qualify and “seem” like a true non-profit. Well, wouldn’t the services you are giving away more than cover what you are attempting not to pay in student loan forgiveness? For example, if you have $200,000 in student loan debt, meaning your Standard Payment would be $2,000 and use IDR and lower your payments by $1000 a month to eventually have that forgiven at the end of 10 years. But you are giving away more than $1,000 a month in discounted services, then what the hell are you really doing and why?
Keep in mind that this guy charges $5,000 for his help in setting up the non-profit and getting you into PSLF so we know his reason for telling people why they should do this.
Next, with PSLF you have to put in 30 hours a week toward the non-profit for your payments to qualify. Meaning you absolutely must keep an exact to the minute record of where your time is going. If you think that you are a small business owner by day and a non-profit owner by night think again. Even worse if you are putting your time with one patient under the for-profit side of the business and the next patient under the non-profit side of the business that is an outright nightmare, it is way too confusing. Guess what, if it is confusing to you then you bet your ass it is going to be confusing to the Department of Education when they look into how you came up with an extra 30 hours a week while running a full-time business. Not to mention what it is going to look like to the IRS when they inevitably audit you. Look I have and still sometimes do work 60 to 80 hour weeks but come on, every week for 10 years?
On his webinars and his sales pitch this guy says to give your services away to the people who couldn’t afford to pay for them. This is so you get something for your time helping the community and a warm heart for giving to people. But if this is what you want to do, the smarter thing would be to make your entire business a non-profit instead of one on the side. People have a lot of misconceptions about non-profits, for example people think they are not allowed to make a profit or must have every dollar donated. That is completely untrue. A non-profit business can absolutely make profit by selling goods or services just like a regular business, it is just not allowed to distribute the profit to private individuals or interests. The profit it makes must be reinvested into the business or the mission. However, a non-profit can give huge salaries to their people, like the owner, which is considered reinvesting into the business. Goodwill, one of the biggest non-profits in the country, reportedly gives huge salaries to its executives, upwards of $1 Million in some cases. Having your entire business be a non-profit and paying yourself handsomely as the business grows instead of having one on the side would be so much safer.
Lastly, and perhaps most importantly, this scam of having a non-profit comingle with your for-profit business is almost the pure definition of tax evasion. When the IRS comes and audits one of these poor unsuspecting clients that bought this guy’s bullshit they will comb through every single dollar and every single minute they reported to be working in the non-profit versus the for-profit. Any discrepancy or miscalculation has a severe consequence. Simply not worth the hassle and mental stress.
I thought this was a bad idea when I first heard it but thought if it could help my clients I should bounce it off of some smart people. Every single lawyer that I have on retainer, and even some of my friends and clients who are attorneys, said they wouldn’t touch this strategy with a 10-foot pole. Probably why this guy is scamming chiropractors and not attorneys. Most of them said something like this, “Tax evasion is not a space you even want to step your toe in, let alone jump in full force.” Keep in mind that they arrested Al Capone for tax evasion, if you think you can mess with the IRS and get away with it, don’t bet on it. We are talking federal prison as a consequence here.
If you are a normal W2 employee and start a non-profit in your spare time that could work. As long as you are not doing it “just” for PSLF. Plus, you better be willing to have a spotlight on everything you do and have a well documented 30 hours a week if you want PSLF. Oh, and never comingle your W2 income with the non-profit funds. You know what, just have an amazing attorney and tax professional please.
All that said, my advice is fairly clear, never start a non-profit on the side of your for-profit business just for tax free forgiveness. Either make your entire business a non-profit or keep it a for-profit. It is better to use my two strategies I outlined in my article about Tax Forgiveness Strategies if you have a for-profit business and want to take advantage of student loan forgiveness. You will sleep much better at night not having to worry about an audit or prison time. If you have a chiropractor or holistic health practitioner in your life anywhere in the country, make sure you let them know not to participate in this scam, please.
If you have any questions or want to learn safe and legal ways to lower your student loan burden, then get in touch with us for a free consultation: