Soup Kitchens and Tax Exempt Restaurants

There is a feel good story [so far] in the LA Times regarding a new nonprofit restaurant opening up in Watts.  And it raises a lot of good classroom questions too.  Funny thing about nonprofit restaurants.  We don’t mind soup kitchens slinging soup and hash, without pretense or decorations to the very poorest people.  Just an appreciated smile, really, is all soup kitchens have to offer after everyone’s eaten whatever they afford to feed you.  A nonprofit eatery that offers anything much more is liable to be accused of being “commercial” and thus not tax exempt.  I am not sure what tax law is saying about the dignity of people who, maybe once or twice, would like to sit down in a real restaurant like who are able to take a shower or bath regularly.  You know, clean people. 

There are a lot of “restaurants” listed on Guidestar but I bet they are operated like stereotypical soup kitchens.  Which is a good thing don’t get me wrong.  We certainly need more soup kitchens then nonprofit restaurants, I’ll admit.  But why can’t you be more than a chow hall or a taxable feeder organization to be a nonprofit restaurant where people come in, sit down, are waited on, and if they can pay something they do.  Or they pay a set price to cover costs but no profit.  Or nothing if they can’t afford it.  Jon Bon Jovi even has one, but I am not sure it is tax exempt.  Its owned by the JBJ Soul Foundation, which is exempt.   I am just not sure that the restaurant itself is exempt, maybe an integral part or something.  

Me, Lloyd and Thomas have at different times posted about difficulties of gaining exempt status for a restaurant that serves poor people with the same decorum, dignity, cleanliness, courtesy, wait service, and Saturday morning ambiance of a real eatery like Panera Bread.   Too much to ask for charity?  Well consider this.  Some of the most opulent places I have ever seen are on college campuses and nonprofit hospitals.  Oh yeah, can’t say I’ve been kicked out of nicer places.  But you better not even wipe down the table in a soup kitchen, apparently, if you don’t want to be “commercial.”  Our colleague Thomas has been there, done that by the way. I hope somebody in Watts gives him a call.  

The JBL Soul Kitchen where they have a fabulous menu and about half the patrons pay by donations, the rest eat free.

Here are some excerpts from the LA Times.  I’m teaching a Nonprofit Seminar this semester so after the fold I include classroom discussion questions. If anybody has more discussion questions please send them in the comments.  

Locol, the groundbreaking, community-focused restaurant that closed five years ago, is set to reopen in its original Watts location — this time as a nonprofit organization.  Daniel Patterson, the chef and entrepreneur who co-founded L.A.’s Alta Adams, and Keith Corbin, the co-founder and executive chef of Alta Adams, plan to start hosting pop-ups in the space later this summer, then open in the fall with a new menu, more educational outreach and a training program for members of the Watts community.

Locol, named the L.A. Times Restaurant of the Year in 2017, was founded by celebrity chefs Patterson, formerly of multiple Bay Area fine dining institutions, including Coi, which at one point earned three Michelin stars, and Roy Choi, TV host and founder of the Kogi food truck empire. Together they sought to create a new model for helping the community through food service and vocational training. Serving what L.A. Times critic Jonathan Gold called “not a replacement for fast food, but a better version of it,” Locol offered what was intended as healthier, affordable vegetable bowls, grain-enriched burgers, chili and chopped salads that topped out around $8 in an effort to serve what by and large remains an underserved food neighborhood. When it shuttered in 2018, the chain’s closures made national headlines.

Although Choi is no longer involved, Patterson and Corbin — a Watts native who got his start in the restaurant business as a line cook, then kitchen manager at Locol — plan to run a quick-service restaurant and educational training center in the same 103rd Street space it used to operate. “We’ve had a lot of time to look at what it is that did work, and what was so powerful was vocational training and empowering people,” Patterson said. “So we want that to be the focus.”

Corbin and Patterson are applying for Locol’s 5013(c) designation, and in the meantime work with Fiscal Sponsorship Allies, a nonprofit that aggregates donations to organizations. To raise money, their West Adams restaurant, Alta Adams, began donating 1% of its revenue in the spring, while a bimonthly Monday dinner series there donates a portion of its proceeds to the reopening efforts. Both chefs hope that running Locol as a nonprofit will help increase their access to those who need quality food and nutrition education.

Darryll K. Jones

Discussion Questions:

1.  Should the 1023 applicant be concerned that the organization has a for-profit past and two famous chef/restaurant owners with ties to the new project?  Can they sit on the board of trustees for the new entity and if so what precautions should be implemented?

2.  How should the eatery set its prices?  What concerns might the IRS raise by the fact that food is not given freely like a traditional soup kitchen but instead offered at prices below market?    

3.  What impact on the organizations application would the organization’s educational program have?  What would be your response if the revenue agent suggested you dramatically beef up that part of the activities that train food service workers, including chefs and potential owners and then give away food all the same for suggested donations rather than set prices?

4.  Would it concern you from both a legal and fairness standard if there were three or four other for-profit restaurants in the near vicinity?  Should the revenue agent be concerned about that as well?