We do a lot of nonprofit and tax exempt work at my firm. People come into my office with all kinds of ideas for charitable organizations. I thought I’d heard it all – apparently, I hadn’t. The “Case of the Charitable Sperm Bank” has put an interesting twist on the types of charitable activities that taxpayers are willing to promote.
Here are the facts of the case: William C. Naylor, Jr. is a Washington state software engineer who holds a number of patents. My guess is, he’s a pretty smart cookie. In 2001, he contracted with a sperm bank to store and distribute his sperm to recipients of his choice. As part of the arrangement, he was required to pay the storage fees for the sperm. He was also able to choose the recipients of his apparently genius sperm.
At some point, Naylor decided to spread the wealth a bit. He incorporated Free Fertility Foundation, Inc., in California in order to provide sperm free of charge to women seeking to become pregnant through artificial insemination or in vitro fertilization. While the web site purports to offer a variety of sperm, there is currently one donor listed in the catalog:
fwcn02453 – scientific researcher; mathematics and computer expert; vice-president of company; straight A student in university; chess champion in high school; awards for academic excellence and athletics while child; 6 ft 1 inch tall; Caucasian 3/4 English 1/4 Scottish. Sperm vials available immediately with no wait.
That’s right. It’s Naylor. He’s sharing his own sperm with those less fortunate than himself because:
I derive meaning and happiness from believing that I am making the world a better place. Being a sperm donor is a way that I can help a few people to have children who otherwise could not. This makes more of a positive difference to the world than all of the inventions and scientific discoveries that I could ever create.
That may be a noble enough intention, depending on who you are. But it doesn’t rise to the level of providing a truly public benefit, as Naylor found out. In 2004, Naylor’s company made application to the IRS for tax-exempt status. The application was denied. While Free Fertility Foundation, Inc., claims that it promotes health by providing free health products and services, the IRS found that the operations do not promote health or otherwise serve a charitable purpose. In fact, the application process has very little to do with health. Naylor has a list of questions for potential beneficiaries; he scores and screens all of the questionnaires by hand to determine whether a potential recipient is qualified. As part of the selection process, Naylor gives special consideration to women “from families whose members have a track record of contributing to their communities” and women “with better education.”
Naylor’s qualifications for his sperm recipients means that the pool is a little smaller than it might otherwise be. In 2004, of 433 questionnaires received by the company, only 20 were granted sperm. In 2005, 386 questionnaires were received but only 4 women received sperm donations. In other words, over a two year period, only 24 women were found to have benefited from, er, the company.
While the Court found that “free provision of sperm may, under appropriate circumstances, be a charitable activity” (boys, the key wording here is “appropriate circumstances”), it also agreed with the IRS that “the class of petitioner’s beneficiaries is not sufficiently large to benefit the community as a whole.” The Tax Court found that the organization is “not operated exclusively for exempt purposes and therefore does not qualify for tax exemption pursuant to section 501(c)(3).” You can read the Tax Court’s opinion as a pdf here.
The Tax Court was clearly trying not to judge whether the donation of Naylor’s own sperm was charitable on its own. I have a feeling if they had, a whole bunch of new charitable entrepreneurs would be, um, setting up shop. The real point of the case is that potential pool of charitable beneficiaries must be large enough to justify tax exemption and adding restrictions and other criteria necessarily limits the pool of beneficiaries. Whether those restrictions are fair or just isn’t the point – the Tax Court didn’t even get there in its analysis. The focus was, instead, on whether the final benefit to the public was enough. Despite Naylor’s claims about the good that his sperm can do in the world, the answer is no. The Tax Court did leave open the possibility that under the right circumstances, the answer could be different (hey Clooney, call me!).
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{ 16 comments… read them below or add one }
There goes my Free Sperm charitable deduction. Guess I’ll just keep selling it for profit and writing off those direct production expenses.
Guess we’ve lost our high editorial standards since our B5media days, TaxGirl, with you writing about sperm and my latest post about a franchise foot fetishist:
http://www.unhappyfranchisee.com/massage-envy-franchisee-fetish-afoot/
Another hot one in PA! Whew!
Wait, Sean, we had high editorial standards?
I would argue that his “donation” of so much sperm is more of a health hazard in reality. What happens when child A meets child B, not knowing they share the same paternal genetics and decide to procreate… we’ll need a whole new charity just to deal with that issue!
Kelly,
While I am sure he has expenses to deduct, I don’t get what his revenues would be to create potential taxable income? Thereby creating the tax exempt status. What gives??
My guess is that he saw this as a way to write off his expenses as a charitable donation – he implies on his website that the costs would normally be close to $1000 per cycle. He also says that their plans were to cover the costs of IVF (I’m assuming for the women who qualify for his sperm only). It may be that he was going to hit his friends up for cash donations. But mostly, I think he was seeking to bring legitimacy to what he was doing.
Being the grandmother of his most recent “genius” creation, his foundation’s assistance does equate to a charitable purpose. Had it not been for Mr. Naylor and his charitable actions, I wouldn’t have the beautiful grandson that I am so happy to have.
People can make fun of this all they want, but the reality is that Assisted Reproductive Technology is VERY EXPENSIVE and without his help, my daughter would never have been able to afford the expenses on her own. Until you are faced personally with infertility, you will never understand.
If it had not been for this Mr. Naylor I would have never had my twins. It is very expensive for IVF and because of him I was able to have children. I thank him for that…
Not everyone who offers to do something nice for others is looking to “legitimize” their own behaviors, planning to “steal” from their friends, or “write off their own expenses”. There are no costs associated with donating sperm, in fact, most sperm banks pay their “donors”. I’m not sure how much Bob thinks IVF costs, but there’s a big difference between paying $14,000 for one procedure that may not even work, and providing for a child. People have babies for free everyday and still can’t take care of their kids in this economy.
Why beat up on someone just because what they are doing is different from the norm? We should be attacking all of the “pervs” out there stealing little kids and doing God knows what to them before they dump them in a retention pond, or the media for only publicizing all of the sick and twisted acts that are befalling this wretched nation.
The IRS has no problem allowing tax exempt status to all the crooked charities out there who pretend to do charitable works, but are only serving as a tax shelter for their parent for-profit companies.
A. Hanna, if you would like to exchange emails I have a kid from him too.
greatful 1 it is abtb98@yahoo.com
I have a wonderful little girl from him as well, I would like to keep in touch too…
RemiRoo my email is t.pretty@rocketmail.com
Hey i want a baby
I have considered applying to the Free Fertility Foundation. Even before all this tax stuff, I suspected that it was basically set up by one guy. I even e-mailed several years back to the general e-mail and asked if the person answering the e-mail was actually the donor himself. The reply was pretty cryptic, used “we” and simply said they do not disclose donors identities. The thing that weirds me out is how he doesn’t seem to be fully honest. Its not up front that the donor set up the site himself, and while he says his goal is to help women who wish to conceive, it seems that his goal is more of a eugenics one. He thinks he’s got great genes and wants to spread them around. I would be concerned if I used him that later my children would feel really weird to have been part of his shadowy social experiment.
“Thinking”- Many charitable organizations are originally established by one person and that one person may be the only one who contributes to the organization. Over time others may join their crusade, or maybe not.
There is nothing wrong with people being skeptical about someone’s motives, but who are we to judge his intentions. Anyone who chooses to apply for free sperm should know that they will have to explain to their child about their conception just as parents who break up have to explain their break up to their children. What’s the difference?
If you have a child via Assisted Reproduction, you will either have to buy sperm, or have your own donor. So what’s wrong with someone offering to provide the sperm for free? What it’s more ethical to buy it from a sperm bank than get it for free from someone who realizes that the A.R.T. industry is robbing infertile couples blind?
If you buy the sperm, you will still be faced with having to explain to the chld why they have no father. You will also have to explain to the that they may have brothers and sisters out there somewhere. So again, what’s the difference?
Our perspectives and the approaches that we choose to take should be what guides our children as they grow older, not what others think and feel is right or morally acceptable.
Personally, I think it’s a shame that the IRS has the ability to determine what’s tax exempt and what’s not. If you give something to someone less fortunate without requiring anything in return, it’s charity, point blank. Who are we to question his motives or to judge his actions as less than respectable.
Anyone who has anything negative to say about Mr. Naylor and the Free Fertility Foundation should take a long look in the mirror and ask themselves what their purpose is here in this life. Were you really born to be a naysayer? Were you put here to pass judgment on others? Do you even have the right to judge him? What charitable acts have you offered to those who are infertile as an alternative to what you consider his attempt to “steal” money from his friends?
FYI, he’s not hard up for cash and he has a wealth of skills and knowledge to ensure he never has to ask his friends, or you for cash donations. You are all pitiful to sit back and pass judgment on someone you’ve never even spoken to, don’t forget about that little thing called “karma” it could come back and bite you!
I am also a lucky recipient of Mr. Naylor’s amazing generosity and would love to talk to anyone else that has a baby because of him. trsrdh@live.com
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