Slashdot Mirror
X.Org Foundation Loses 501(c)3 Non-Profit Status
An anonymous reader writes "The X.Org Foundation, which drives the X.Org Server projects, Mesa, and Wayland open-source programs, had its tax-exempt status revoked by the IRS. It turns out the X.Org Foundation had put in quite a lot of work to become a non-profit organization, with guidance from the Software Freedom Law Center. They got in trouble after failing to routinely file their taxes on time. There's also been a host of other X.Org accounting errors in recent years. There was also the recent news of the IRS going after open-source projects, too."
Seriously. How hard is it to file your taxes on time? Or to hire someone to do it for you?
Why do you have to file taxes if you are tax-exempt?
OK, I understand people don't like to TRFA, but did you not even RTF summary? What tricks? The "trick" of revoking tax exempt status for orgs that fail to properly file the required paperwork?
OK the article should have said what this means and didn't. The IRS reinstates 501c3 status pretty easily once you clean up your paperwork. You can apply for retroactive reinstatement but that requires a good explanation of why they didn't file, and if X.org's reason is some variant of "we forgot" that won't cut it. This means they are liable for corporate income taxes but I'm sure their expenses easily kill any income. The big problem is often state taxes apply during the period where they are off the 501c3 rolls. But here they might be able to do OK on an appeal.
My guess is that this is not going to be too expensive but it will be annoying.
Tax-exempt status revoked for hundreds of area organizations (If you get a paywall you can get past by saving the site source to your hard drive and opening that up.
So X.org applied for and received 501(c)3 status, and then failed to live to its end of the bargain, resulting in the IRS revoking its status.
Someone please tell me why this really newsworthy? Is it only because its a company related to software? (Of which I bet the majority of /.ers don't even use - and I said majority .. not vocal individuals)
I am Slashdot. Are you Slashdot as well?
They didn't file their taxes. It has nothing to do with politics.
"We should tax all foreigners living abroad." - Monty Python
The British Empire did this successfully for hundreds of years. It's a pretty good revenue model, don't knock it.
X.org is the group writing X11. So, no I'd say a large chunk of /.ers if not a majority will use their software during any given decade.
"We should tax all foreigners living abroad." - Monty Python
The British Empire did this successfully for hundreds of years. It's a pretty good revenue model, don't knock it.
The US is one of the few countries that tax it's own citizens while they live abroad. My (half) American friend has to fill out a US tax return every year, although since he lives in the UK the tax he already paid here counts towards (and exceeds) the US requirement.
X.org is not a company. It is is a group of volunteers, either individuals or corporate employees begin donated by their employers. The group writes and maintains the Xserver which is in use on almost every Linux desktop and many embedded systems. This code is given away for free to benefit all who use Linux.
If that doesn't qualify as a 501(c)3 I don't know what would qualify. The group has no revenue, they rely on donations to function and everything they make is given away for free -- to anyone who asks with no restrictions other than some minor licensing terms. And the licensing terms are really minor, like give proper attribution to the authors of the code. The benefit from being a 501(c)3 does not accrue to X.org, the tax benefits goes to the companies donating to the organization since those donations are now tax deductible. Hopefully that means X.org will get more donations.
I do agree that a few companies seem to be abusing 501(c)3 and open source. Those companies are making captive open source projects which basically only benefit themselves. But that's more of a marketing gimmick than a tax avoidance one. The resources being given to the captive 501(c)3 were deductible to the parent corporation anyway. So if the IRS dissolves these captive 501(c)3s they aren't going to get any more revenue. They'll just move where the deductions are being taken.
Yes, Microsoft sent lobbyists to X.Org to prevent them from filing their paperwork on time.
Meanwhile, no one has a problem with the National Football League being considered "non-profit" by IRS standards ( http://www.usatoday.com/story/sports/nfl/2013/05/29/nfl-sports-leagues-irs-tax-exemption/2370945/ ). I am not saying that X.org did not screw things up, but we certainly have some strange qualifications to benefit from non-profit status. X.org sounds like they had some trouble filing, but I am sympathetic to non-profits in general having difficulty filing. Oftentimes, they really are run by people who are passionate about their cause, but not necessarily familiar with the accounting standards needed to remain in good standing with the IRS. Compliance with reporting requirements can cost you a lot in accounting fees and time.
If I move to Bermuda I'd pay no tax to the UK.
http://rt.com/usa/americans-refuse-citizenship-tax-317/ "The United States is the only country out of 34 in the Organization for Economic Co-operation and Development (OECD) that continues to tax citizens regardless of where they live around the world."
I though text-exempt status also meant you didn't have to file all that paperwork once you had it. Lot of good it does to have tax-exempt status for a non-profit that makes no money, anyway.
First off... Non-Profit does not mean they don't make money, only that any money and assets they acquire do not belong to someone or a for profit entity. Non-Profits can and do make money, sell things and services at a profit, pay employees and all the same things other businesses do, but they cannot acquire cash and assets which end up owned by an individual or other for profit entity.
Second, the filing requirements for tax returns are not that involved for a 501c3. For most non-profits it amounts to filing out a form similar to a 1040Ez. The IRS generally wants to know where your money came from so they can cross reference donors deductions with receipts, at least in the general sense. I don't believe that a non-profit has to report who is giving to it, just how much they received. I also don't think that they would be required to pay taxes, only file the report.
The real problem here is that the organization that can't be bothered to file the yearly reports is likely going to be a problem for someone wanting to give money and take the tax deduction. If the organization doesn't supply a receipt a donor will be limited to $250 and if they cannot supply the IRS with the yearly return, I'm sure they won't be bothered to send out receipts either.
Seems that this organization doesn't really care about the money side of things. This is a shame, because the accounting is NOT that hard and the risks of not having proper controls in place is pretty big.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
So, counselor, in your estimation - is the IRS Inspector General a Tea Party Libertarian employed by Fox News, as well?
Because the IG report basically confirmed what you're trying to hand-wave away - that organizations were targeted for "special" processing which imposed unnecessary burdens on them - for no other reason than their name, or chosen policy positions (e.g., a focus on "government spending").
From the report:
The lesson? Sometimes, the government really *is* wrong when Fox News reports they did something wrong.
It is not hard to remember, in particular because with an organization of any reasonable size you'd want to hire an accountant to do your taxes. If you are a non-profit, you'd hire an accountant who knows how to deal with that.
Any business taxes, profit or non-profit, are a bit complex and this isn't unique to the US. So you hire an accountant. Just part of doing business. My parents used to run a small business in Canada, about 5 employees including themselves. They hired an accountant to do their taxes. It wasn't that expensive and the accountant made sure everything was in order and the Canadian government was happy.
Well same shit here. X.org should have paid someone (or some firm) a couple of grand a year to do their tax accounting.
You don't get awarded tax exempt status and then are allowed to do as you please. If that were the case, every company ever would start out as a charity, get tax exempt status, and then change over.
So you have to file and show that your activities still warrant tax exempt status, that you aren't violating the rules for it. For example suppose you run a non-profit and you get a massive donation, some billionaire leaves you a billion dollars. You decide cool, you'll pay all of it to yourself as salary for that year. I mean the entity is still "non-profit" right? Your salary is a cost, so no profit was made!
Ummm... no. You'd get in all kinds of trouble for that. Doesn't matter what kind of games you tried to play. Hence, you have to file taxes to show that your operations are indeed non-profit, that the money you receive goes to pay for the operation of your organization, not to enrich yourself.
If you want an organization to enrich yourself, that's fine, but that is called a business, and you have to pay taxes on that.
Except, really, they didn't. They "came for" -- i.e., put on their "be on the lookout" list -- several different classes of non-profits, including "Open Source", "Occupy", "Free Palestine", and "Tea Party" groups, all at the same time. No "first they came for" about it.
But since Tea Party groups were essentially created by Fox "News", you heard a hell of a lot about that. Not so much about Palestinian rights groups having the exact same problem.
Tom Swiss | the infamous tms | my blog
You cannot wash away blood with blood
The problem is that the rules are phenomenally complex.
Sure they are, but that doesn't stop 90% of people from filing on time, or at least filing for the automatic extension. For that matter, nearly every church in the country manages to do the same.
I get the idea that the IRS doesn't revoke the status for 'simple' mistakes, they revoke it for major things like not filing for 3+ years. If they're acting within the rules of an exempt organization, even an audit isn't going to turn up more than minor fines at most, and at best it'd amount to IRS agents helping to fix the paperwork.
FTA:
"The status of the 501c3 is lost because we (me) failed to file the 3 past years' tax returns on time. Note that we've Never filed returns since our first re-organization to the LLC in 2005.
I don't read AC A human right
So the "powers that be" infiltrated X.Org's finance/accounting groups and made them not follow the rules for non-profits?
This is no different than the spun up fiasco a few months ago about the IRS investigating non-profits that appeared to be fronts for political organizations (and contrary to the Fox spin, it was not just targeting the Tea Party). To be a non-profit there are some specific rules you have to follow to maintain the status. It is the IRS's job to investigate to make sure you are following those rules.
So the real news here is "IRS does their job and idiots get upset about it and make up conspiracy stories".
Many open source projects and organizations aren't a business, and it can be challenging for nerds to keep track of tax rules for various organization types. Depending on where you have your base the rules may differ, and there may even be rules that exempt you from filing the taxes at all.
Which is why you get an accountant.
If you accept money, prepare to get an accountant. No one made X.Org accept money.
I was actually talking about the IRS itself, not X.org's accountants.
Your claim was that there is a conspiracy against OSS organizations, but this wasn't some obscure rule or gray area that they used to revoke the status. The X.org accountant also admits that he screwed it up so unless you have evidence that he is a plant by the IRS or "the powers that be" there is no conspiracy evidenced by this case.
The IRS's job is to collect taxes according to the tax law (convoluted though it may be). Part of that job is to make sure that people and businesses are paying what they should be (loopholes aside). This is a clear case of X.org's status was reviewed and the IRS found that they weren't meeting the requirements of the non-profit status. It's really not any different than if you had consistently filed your taxes late, they decide to audit you for it, and they turn up evidence of your unreported eBay store that you are supposed to be paying taxes on. Just because you don't like taxes or don't agree with some particular tax law doesn't make what happens in cases like this wrong.
I'm not denying that there are abuses and things aren't enforced uniformly, but the fact is that they failed to follow the law and were punished for it according to the law.
People complain when a government agency isn't doing their job and you're complaining about them actually doing it. There is no conspiracy here. There is no trampling of freedoms. This is exactly what is supposed to happen in such cases.
I was treasurer of a small non-profit ($200k/yr) and our Form 990 filing ran about 60 pages. That's tedious, but was normally straightforward. The interesting part came when filing for the automatic 3-month extension* (Form 8460?) in the mail. The USPS seems to tuck these forms behind the counter, and wait till the deadline passes. Then the IRS would take a month to tell us that the extension was received 3 days late, and we owed them a fine of $1000/day for 40 days. Then we'd appeal, say we were sorry and it won't happen again and "procedures have been put in place". That would normally appease them. The "procedure" is to use registered mail, or file for the extension immediately at the close of the financial year.
Anyway, my point is that the filing was not trivial. There were many things that could go wrong.
Also, donations over $5000 must be tracked and reported individually. You'll get a big smile from your 501(c)3 accountant if you donate $4999.
* We always filed the extension because, by and large, our books were not stable until well after the regular filing deadline---mostly people "forgot" to cash checks we wrote, so we had to let the checks expire, which took 6 months.
Yes, it does. Pointing out that the "Tea Party" phenomenon was created and hyped by Fox, however, is not "crazy talk", it's the only conclusion anyone paying attention can reach.
Chuck Todd admits FOX News created and hypes the Tea Party Movement
How Talk Radio and FOX News created the Tea Party
The Tea Party: Populism of the privileged: "This must be the first "populist" movement driven by a television network: Sixty-three percent of the Tea Party folks say they most watch Fox News "for information about politics and current events," compared with 23 percent of the country as a whole."
Fox News spent weeks promoting apparent tea party scam: "Fox News heavily promoted the Tea Party Express; the Our Country Deserves Better PAC even used Fox's promotion in a fundraising email. Then Fox's Griff Jenkins hit the trail with the Express, following that bus around the country, throwing journalistic integrity aside as he declared its riders "the America that Washington forgot.""
Tea Party Promotion by Fox News
And there's the usual beautiful job by The Daily Show showing Fox clips puffing up the teabagger protests.
Not really significant to the overall point, but yes, it does seem that complaints from only one Palestinian rights group have been covered in the news to date.
Tom Swiss | the infamous tms | my blog
You cannot wash away blood with blood
Prior to 2006, certain 501(c)(3) organizations that normally had gross revenues less than $25,000 were not required to file any tax returns at all. One problem that created is that the IRS had no way of knowing whether organizations that weren't filing returns (1) had gone out of business, (2) had gross revenues less than $25,000, or (3) were supposed to file returns but were failing to do so. So, in the Pension Protection Act of 2006, Congress amended Section 6033(i) to require all Section 501(c) organizations (except churches) to file at least a very abbreviated return (containing six items of information), and it amended Section 6033(j) to provide that any organization, whatever its size, that fails to file a return for three consecutive years would automatically lose its exemption.
Section 6033(j) doesn't give the IRS any discretion in the matter. Failure to file a return for three consecutive years means that tax-exempt status is automatically revoked, whether the IRS takes any formal action or not, and there is no procedure for appeal, either within the IRS or in the courts. Because this is such a draconian penalty, in 2009 and 2010, as the third full year following the 2006 Act began to run out, the IRS was very aggressive (and creative, at least for such a bureaucracy) in trying to get the word out to the nonprofit community, including using podcasts, YouTube videos, radio PSAs, and so on, encouraging them to file returns to avoid losing tax-exemption. It even posted a list of all the organizations that had failed to file for three consecutive years and then allowed them a further grace period to file the necessary returns to avoid revocation. There were something like 400,000 - 500,000 organizations on that list, and probably 90 percent of them did nothing and ended up having their exemption revoked.
Since then, the IRS has announced procedures for getting tax-exempt status reinstated, but that requires filing a new exemption application. Some 50,000 or so organizations that did lose their tax-exempt status have reapplied in the past several years, and that extraordinary, additional workload on the Cincinnati office that processes exemption applications is one reasons why it now seems to take the IRS forever to rule on new exemption applications and is part, but not the only reason for the highly publicized delay in processing Tea Party applications.