By Mallon FitzPatrick and Alicia Denton
November 29, 2022 – One of the most celebrated pop stars of the last decade, Lady Gaga, was caught up in a controversy when her charitable organization was accused of mismanagement. The Born This Way Foundation’s 2012 tax filing reported $1.8mm in expenses and only $5k in grants to other charities. This cash flow discrepancy garnered criticism from advocates and fans – and it was widely publicized in the media. Was Lady Gaga’s charity mismanaging its assets?
Lady Gaga started the Born This Way Foundation in 2012 to “support the wellness of young people and empower them to create a kinder and braver world.”[1] The charity focuses on mental health and anti-bullying measures for young people. Lady Gaga’s foundation is a public charity. However, the term “foundation” may cause confusion; the word may be used in the name of a public charity or private foundation. Both types of organizations are considered section 501(c)(3)s for tax purposes, although there are important differences.
To qualify as a public charity, an organization must pass several IRS tests. One important test is that a third of the organization’s financial support must come from the public or the government. For example, the Make-A-Wish Foundation is a public charity. A private foundation, on the other hand, is typically controlled by members of a family and derives most of its support from a small group of individuals and investment income.[2] Private foundations come in two basic flavors: operating and non-operating. Operating private foundations actively conduct programs that directly benefit the public, whereas non-operating foundations primarily make grants to nonprofits and avoid facilitating their own programs. Americares is an operating private foundation, and The Bill and Melinda Gates Foundation is a non-operating private foundation.
The controversy surrounding Lady Gaga’s charity in 2014 highlights the difference between a public charity and a non-operating private foundation. Since the Born This Way Foundation is a public charity, its goal per the IRS is to operate for the benefit of public.[3] Grantmaking to other charitable organizations is not required to maintain its public charity tax status. Interestingly, the organization’s direction may be changing. In 2022, the Born This Way Foundation started a Community Fund and gave $1mm to local organizations in the cities where Lady Gaga performed during her recent Chromatica Ball tour.
Despite the past controversy – which was a misunderstanding – the Born This Way Foundation is currently rated 90 out of 100 on Charity Navigator, a group that rates the effectiveness of charities. Charitable organizations can be complex regarding funding sources, tax designations, missions, and grant distributions. Before donating a significant amount to a cause you support, research the organization and confirm that its mission, administration, and use of funds align with your intentions.
[1] https://bornthisway.foundation/our-mission/#:~:text=Born%20This%20Way%20Foundation%2C%20co,a%20kinder%20and%20braver%20world.
[2] https://www.irs.gov/charities-non-profits/eo-operational-requirements-private-foundations-and-public-charities
[3] https://www.irs.gov/charities-non-profits/charitable-organizations/public-charities
