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The IRS vs. Open Source
simonstl writes "The IRS wasn't after just the Tea Party, Progressives, or Medical Marijuana: Open Source Software was a regular on IRS watch lists from 2010 to 2012. Did they think it was a for-profit scam, or did they just not understand the approach?"
Which is exactly why the U.S. government is against it.
They probably know that people with libertarian/anti-authoritarian views gravitate towards such things, much like how they tend also to support groups like the EFF. To the federal government, that's not much better than being a member of Al Qaeda...
In SOVIET RUSSIA... erm...NSA AMERICA, the Internet logs onto YOU!
"These organizations are requesting either 501(c)(3) or 501(c)(6) exemption in order to collaboratively develop new software. The members of these organizations are usually the for-profit business or for-profit support technicians of the software."
The fact that for profit businesses are using open source as a tax break excuse is reason enough for investigation. The IRS wants to collect taxes, not give tax breaks. Of course it would investigate people seeking tax breaks on potentially shaky grounds...
Review and investigation of applications is to be expected in any organization.
Only the FISA court approves applications without review
More music, fewer hits
Did they think it was a for-profit scam, or did they just not understand the approach?
I'm very pro-open source but it appears that the fear from the Internal Revenue Service was that companies were figuring out ways to dodge taxes by moving developers to 501(c)(3) or 501(c)(6) organizations and then paying them in "donations" after the software was released thereby avoiding some federal and state income taxes to what normally would be their regular employees. Basically you would be setting up an educational or scientific group of your own developers, you would be able to pay them less due to 501(c) income tax leveraging and at the end of the day you'd still get your commercial software designed for you under an Open Source license. This, of course, by and large does not happen nor is there any evidence of it (I'd imagine very few open source developers even get paid for it) but was it really so wrong for the IRS to watch out for it? Even if they're not engaging of what the IRS would call "non-linear compensation" you might still be able to pay developers as employees of the 501(c) their regular wages with far less tax.
I mean, are we going to sit here and bitch and moan about corporate tax avoidance in our country and then freak out when the IRS investigates if Open Source groups are being abused in the same manner?
Is it really that wrong for the IRS to identify points of abuse and to look out for them? My gut says they should be able to identify and investigate but perhaps I just can't imagine how they would abuse that ability if they present a legitimate reason. Seems like they had a legitimate reason to watch for unlawful activity, unless I'm missing something?
My work here is dung.
My guess is it's the fact that most of the membership in those open-source projects are developers for for-profit businesses. The IRS would be on the lookout for businesses hiding their normal development activity over in a tax-exempt organization. I note that the IRS position is "no particular advice, look it over and punt it higher up the food chain if you can't make a clear call on it". Which I think is the standard procedure for anything. I'd rather have that in place, when a Tier 1 bureaucrat makes a wrong call it's easier to argue "They admit it's not clear here and here, according to IRS procedures they should've sent it up to a higher level to decide." as opposed to "They made the wrong call.".
Well, TFA says:
so maybe the IRS was concerned that open-source consortia are some kind of tax dodge.
[Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
Open Source Software
These organizations are requesting either 501(c)(3) or 501(c)(6) exemption in order to collaboratively develop new software. The members of these organizations are usually the for-profit business or for-profit support technicians of the software.
There is no specific guidance at this point. If you see a case, elevate it to your manager.
It appears that the fear here is that for-profit companies have the potential to evade taxes by relabeling their code as "OpenSource", and turning their development staff into 501C employees (supported by donations from the for-profit company). For that reason, they want someone with a wee bit more training than your average low-level screener looking at applications.
IMHO allowing this would be a Good Thing from the standpoint of social policy, as the resulting software could be used by anyone, rather than just that one company. But deciding on what is good social policy to allow is Congress' job, not the IRS's.
IRS internally uses JBoss and Tomcat, both open-source Java application servers. They also use PrimeFaces and the Spring Framework.
I wonder if the abuse would be mitigated if the software were released publicly while under the open source license. Evade taxes, taxpayers get access to your product.
"These organizations are requesting either 501(c)(3) or 501(c)(6) exemption in order to collaboratively develop new software. The members of these organizations are usually the for-profit business or for-profit support technicians of the software."
The fact that for profit businesses are using open source as a tax break excuse is reason enough for investigation. The IRS wants to collect taxes, not give tax breaks. Of course it would investigate people seeking tax breaks on potentially shaky grounds...
Yes, exactly. There are many abuses of 'non-profit' status.
In my entrepreneur ship class, a classmate of mine did a project for a non-profit startup.To make a long story short, she was worried that she wouldn't be able to get investors. The prof assured her that wouldn't be the case because non-profit is just a tax status - you're just limited as to what you can do with those profits. In other words, you can get as rich as you like with a non-profit and make your investors rich too.
People get rich with charities too. That's why if you want to give to charity, do it outside of big national charities - your money will go a lot farther.
I wonder if the abuse would be mitigated if the software were released publicly while under the open source license. Evade taxes, taxpayers get access to your product.
Would still be a possible tax loophole if you develop software that is of use to you and you only, with no secrets that can be discovered from the software, and you release it as "open source" fully knowing that nobody in the world except you is interested in it and can use it.
I'd be curious as to a realistic example of this. The closest thing I can think of would be hardware drivers, but there are other parties that benefit from the application of that software. Maybe some drivers for hardware that is used only internally within a system, but that seems pretty unlikely to me.
This is my signature. There are many like it, but this one is mine.
Open Source is similar to the Tea Party. It advocates for individual involvement, responsibility and rights. It wishes to downplay the involvement and power of government and corporations.
I realize many of you are flipping out at the comparison to the Tea Party. Don't let politics blind you. While political beliefs may differ wildly there are these shared basic concepts. These concepts are inherently a threat to the government/corporate status quo.
did we forget the old mantra.
Free as in freedom, not free as in beer.
perfectly legitimate to make money off open sourced code, the IRS simply says they want to make sure you're paying your taxes on that profit.
is it a slow tuesday? let's actually put some thought into topics please.
That's tricky. As the OP says, for lots of applications it's quite possible the only people who could use the software are the for-profit company benefiting from the tax treatment. To figure out whether these maneuvers are legal you'd need somebody who was both a tax geek AND a computer geek.
If you read the article the Open Source apps don't get automatically denied, or sent to some heightened scrutiny status, they get sent to management. Presumably management sends it to their geek-squad. After all, if they were actually giving these projects a hard time we probably would have heard about it on Slashdot before now.
They collect Income, Property, etc tax on the value of goods Sold. For every Open Office installation, there is a direct loss of a potential cut of the Income Tax from Redmond Washington. Many states also have Sales Tax revenue reductions.
Open Source Software is a direct threat to their revenue model.
The truth shall set you free!
You'd be surprised.
I do taxes in the early bits of the year, and I've never had a nightmare story about how their clearly legitimate tax return was mangled by incompetent IRS agents. I've had plenty who screwed up and ended up in closer contact with the IRS then they wanted, but nobody who thought the IRS Agents who called them on it were incompetent. You'll note even the anti-IRS Tea Party-guys currently complaining about these BOLO lists eventually got approved. They had to jump through a bajillion hoops to get approved, but they got approved, and none of them sent any extra money to the Feds.
I'm sure it happens, and the IRS does lose in Tax Court with some regularity, but I've personally done 80-100 tax returns and have given tax advice to dozens of other people who were having trouble with the IRS, and I personally have never encountered someone who had a legitimate gripe against the IRS. Plenty have had legitimate gripes against their tax preparers, but none against the IRS.
In this case it actually seems like it's a search for competence that causes open source applications to be sent up to management. Level 1 guys in the IRS aren't hired for their ability to tell legitimate open source projects from Tim Cook's Advanced Tax Avoidance Strategies, so open source applications get sent to managers who send them to guys who are trained to tell that difference.
When the IRS targets you, its the fault of that pesky troublesome IRS.
It's as if none of these agencies are under Obama's control. His worshipers continue to believe "he'd fix these problems if only he could. Poor guy...suffering from those crazy Republicans in the House" I cannot believe the free ride our fascist president is getting...
Which is exactly why the U.S. government is against it.
There's no evil conspiracy, never was...please, stop the crazy talk...
Open source projects often have a complicated business model, and some open source projects are for-profit.
It makes a lot of sense to check business with complicated business models. Especially, if some of them claim tax exception as non-profit.
In any event, if there are issues it's better that they are discovered and remedied now, than 5 years later.
I'm sure it's fine for some projects to claim to be non-profit organizations, but if the organization:
1. hires developers,
2. is funded by donations from companies,
3. has representatives from same companies on the board, and
4. the same companies generate revenue with open source project.
Then it's hard to see the difference between, open source commercial collaboration between companies, and non-profit open source organizations.
(Just like how it's hard to see the difference between a tea-party related organization and an organization with a political agenda).