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IRS Looking at Google/Mozilla Relationship
ric482 writes "With the release of the Mozilla Foundation's 2007 financial report, questions have been raised by the IRS, who are due to perform an audit on the non-profit organization behind the massively popular Firefox browser.
Last year, the Foundation received $66 million of its total $75 million revenue (88 percent) from search engine maestros Google, so the IRS are looking for blood over the organization's tax exempt status. Back in 2006, Mozilla got $59.5 million from Google — around 85 percent of the organization's revenue.
Google and Mozilla are part of a 'you scratch my back, I'll pay your bills' sort of agreement, with the Google search bar firmly placed in the toolbar, and on the default homepage. Things were a bit rocky a couple of months back when Google unveiled the Beta-run of its Chrome browser, but Mozilla and Google hugged it out and sealed a deal that will last for another three years. That deal will expire in November 2011."
Why not blame Microsoft? Maybe they filed a complaint with the IRS.
Unleash the conspiracy theories!
John
It's true then! Google is really an evil Mafia-type organizations hence the quick rise to popularity and Mozilla is their money laundering machine!
The gig is up guys!
My version of Firefox just has a regular "search bar" that defaults to Google.
If I want another search, e.g., AbeBooks.com, I just change it to that. Does it become an "AbeBooks.com search bar" then?
Would it kill you to put a link in there somewhere?
http://www.mozilla.org/foundation/documents/mf-2007-audited-financial-statement.pdf
To me, there shouldn't be much a fuss about big corporates supporting open source. In fact, I think there should be more involvement (financially) for those big companies who no doubt have benefited from the open source community. As long as the licensing remains open source, everything is transparent...
They give away the browser and spend all of their revenue on development. So, how much taxable profit did the Mozilla foundation make anyway? The IRS has nothing to gain from this. I smell a rat closeby!
cat sig >
...and not after some other fictional 'non-profit' organizations?
Any life is made up of a single moment, the moment in which a man finds out, once and for all, who he is.
85% of Mozilla's funding comes directly from Google?!? For all practical purposes, Google basically owns them. No wonder Mozilla was so forgiving of Chrome.
SJW: Someone who has run out of real oppression, and has to fake it.
Shouldn't the IRS be more concerned about how is mozilla spending that money than where it comes from?
If a "save the children" non-profit organization changed their name to "Google saves the children" and Google donated $100 million, they should lose the tax exemption?
"Non-profit" isn't about how much money enters the organization but how much of it is used in pushing the agenda forward. If they're spending the millions of dollars to make a better free browser, they should still be tax exempt.
If they suddenly started using that money to buy sport cars for every programmer, they should pay taxes even if Google gave them just two dollars.
What do they plan to tax? Their revenues? Is it just that whenever there's money anywhere the IRS thinks uncle sam should get a share of it? Are they claiming that Firefox is some kind of tax shelter? I don't think that's the case. . .
How come there is no story associated with this summary?
Actually, having done bookkeeping for a 501(c)3 on a voluntary basis, I can say that there really aren't that many differences. Basically, a 501(c)3 is required to followed GAP accounting methods -- just as any other IRS-recognized corporation. They have to donate a certain minimum percentage of their annual income to charity. And they have to show that they are organized for the purposes which a 501(c)3 may be organized. Since a 501(c)3 is basically a 'miscellaneous charity status' with the IRS, this means pretty much anything that benefits the community or the greater good, except politics -- they can't directly or indirectly support a particular candidate or ballot initiative. (How non-profits often get around this is by saying "We don't endorse a particular candidate, but many of our members say they are voting for X." )
The important thing that IRS will be looking for is this: Is Mozilla money co-mingling with Google money? Are they keeping it separate? DOes it look like Mozilla is just a front for Google? And so forth. They'll do that by auditing the books, piling through receipts and conducting interviews with appropriate personnel. Mozilla as a non-profit can, believe it or not, sell almost anything. Selling things is not at all illegal for non-profit and actually 'making a profit' is not illegal -- the profit just has to go into a specific fund set aside for purposes that Mozilla is organized for. Such as, in this case, funding Firefox and Thunderbird development.
My blog
The law is very rigid today. To start an organization, you have to jump through a lot of hoops and hurdles to be in compliance with everything from labor practices, to filing the right corporate status, to paying the right taxes. It would be a lot easier for society to find creative ways to reorganized itself if there were no corporate taxes.
Besides, corporate taxes are asinine. Not only are the costs transferred to the public in the form of higher costs and lost employment opportunities, most corporations have successfully figured out how to avoid paying most taxes anyway. It'd be better to just cut our losses, tighten up spending, and tax only individuals.
Generally speaking -- and I'm not specifically accusing Mozilla -- non-profit status is rarely what it seems. Usually the motivation in setting this status up is to avoid certain rules or taxes. It's only proper that this is investigated in Mozilla's case, if most of their income does come from a large highly-successful company.
The IRS should also be taking a very, very close look at Wikipedia. For those reasons, and also the fact that there have been individuals in that organization that have shady financial histories.
Wow, that's a pretty slanted writeup by ric482...
Back in 2005, before the Mozilla Corporation was created as a for-profit organization, the deal with Google went through the Mozilla Foundation. There was worry that the income derived then would need to be reviewed by the IRS (a large part of the reason the Mozilla Corporation was created in the first place). Mozilla set aside a large part of that income in case that happened and the IRS would end up disagreeing with the status of that income.
The review of that income is basically happening now (and the IRS is probably also looking at what happened since).
Mitchell says it like this:
(Lots of other interesting information in that blog entry, too.)
The IRS seems to have the usual paradigm a bit confused.
1) Find one of the few sectors making a profit
2) Take them down
3) ????
If that were the case, the amount of money they are earning should fund a hell of a lot more development than is actually going on.
$50m+ per year should fund enough developers to work on a fully integrated suite of internet tools, but they seem to be barely coping with maintaining Firefox and Thunderbird.
Their primary interest seems to be ensuring that their Intellectual Property does not get included in distros like Debian. Open source non-profit my ass.
I hate printers.
For those looking into the "GAP" accounting methods mentioned, it is actually GAAP - Generally Accepted Accounting Principles.
This post brought to you by your friendly neighborhood MBA.
A non for-profit is a different tax entity to a regular for-profit company. Even though it's mostly charities that are non for-profits (and thus people think that all non for-profits are feel-good), there's absolutely no legal association or expectation that a non for-profit is a charitable organisation - a lot are set up exactly like Mozilla - all the money is given to directors or plowed back into R&D. If you were setting up a business, and you were only in it for the money, didn't care that your business has no place to go once it became profitable and didn't need large capital injections to expand (eg. your product sells for an extremely high per unit compared to it's production costs and is an overnight success), then a non-profit is the best decision.
How on earth did you get modded insightful for that piece of fear mongering?
Mozilla knew this might be coming - they put money aside for this eventuality already in 2003. But nice try.
Since Google is a profitable entity isn't this tax neutral to google? IE if Google and mozilla merged, and Google spent the same amount on development, and giving as mozilla does, google would have the same profit, and thus pay the same taxes. The only difference would be some of the last 15% (non google contributions.) Since individuals can write off gifts to Mozilla foundation, but not to google then that's the money the IRS is chasing, not googles portion of the pie.
Honestly, stop with the Debian bullshit already. Mozilla doesn't want others altering their software and still keeping their trademarks intact (which is what Debian wants to do). Debian places the *EXACT* same restrictions on their own trademarks.
Portable versions of Firefox, GIMP, LibreOffice, etc
501(c)3 is the most well-known because that is how charities organize themselves. But there are other kinds of nonprofits; for instance many of chambers of commerce are organized under 501(c)6, which allows more political activities.
Not related to the current discussion because Mozilla is a 501(c)3. Just making the point that "nonprofit" does not always mean 501(c)3.
Build a man a fire, he's warm for one night. Set him on fire, and he's warm for the rest of his life.
It's just a way to make sure one company (Google in this case) isn't using a charity (Mozilla in this case) for illegal purposes, like plain old tax evasion. If it comes to that, Mozilla simply needs to reduce the amount of money accepted by Google or rally the community to give a significant amount of money in the form of small individual donations, so the ration of Google vs others comes down.
If it seems hard to rally something that will rival Google's $66 million, a useful frame of perspective might be that the FreeBSD Foundation is working with several times the Mozilla's amount: http://www.freebsdfoundation.org/donate/ and they're managing to deal with it. (OTOH FreeBSD itself brings much money to the top donor companies so there's incentive to do it. Yes, FreeBSD developers are happy with this deal that comes from BSDL.)
-- Sig down
I generally feel the same way you do. Companies are basically pass-through entities for personal spending and wealth, so why tax them. And from a philosophical point of view, corporations can't vote so why should they be taxed? We're a nation of people.
However I try to keep my mind open to challenge and I saw a recent argument the other way that was intriguing. Basically it made the point that since high corporate taxes penalize profit-taking, they force money to stay in the business, which drives improvements.
By specific example, imagine a corporation is going to report $100 million in profit. If corporate taxes are very low, they'll distribute that to the shareholders. Supply-side economics says the shareholders will then invest their wealth, driving business growth.
But if corporate taxes are high, the company will put that money back into the business (lower prices, take on additional staff, buy capital improvements, etc) rather than report it as a profit. So the money is still used for business growth, but it avoids the round-trip through personal taxation and investment management fees. And it is being applied to a business that has already proven itself a winner (since it made the profit in the first place).
Build a man a fire, he's warm for one night. Set him on fire, and he's warm for the rest of his life.
Have any idea how many companies get 75% or 80% of revenue from Walmart? Look at how "connected" they are.
Think Deeply.
Note to everyone, parent is a troll, and the above statement is an outright lie. (I felt that I had to post this and point this out so people didn't get misled into believing that statement.)
You know, Microsoft's street address also says a lot about their mentality.
I'm guessing that if the IRS determines that the Mozilla foundation is being operated so that there is significant self-dealing with their substantial-contributors (e.g., google), the mozilla foundation will likely get penalized for this. This would be like if microsoft contributed to a charity and that charity turned around and bought and excessive amount of microsoft software. Here's the IRS page on this subject.
http://www.irs.gov/charities/charitable/article/0,,id=96114,00.html
In addition, there are several restrictions and requirements on private foundations, including:
1. restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons;
2. requirements that the foundation annually distribute income for charitable purposes;
3. limits on their holdings in private businesses;
4. provisions that investments must not jeopardize the carrying out of exempt purposes; and
5. provisions to assure that expenditures further exempt purposes.
They'll do that by auditing the books, piling through receipts and conducting interviews with appropriate personnel.
I smell a new TV show! Like CSI, but with accountants!
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