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."

Comments

No one to blame but themselves

[barlevg]

Seriously. How hard is it to file your taxes on time? Or to hire someone to do it for you?

Re:No one to blame but themselves

[PolygamousRanchKid]

How hard is it to file your taxes on time?

How hard is it to deliver your release on time?

Hey, we're software folks . . . we just don't deliver on time. The IRS should know this, and cut all software folks some slack on that April 15th date.

Re:No one to blame but themselves

[Gerzel]

software folks if working with money of sufficient amounts should hire an accountant.

Re:No one to blame but themselves

[QuasiEvil]

Yeah, no sympathy here. I sit on the board of a local historic preservation society, and we're 501c3. We pay our accountant something like $1000/year (some of her rate is counted as an in-kind donation, but nothing we do is really that complicated) and she keeps the paperwork current and straightened out. I'm relatively sure that X.org runs with a bigger budget than we do and could find accounting services, so this is just gross incompetence on their part.

Re:No one to blame but themselves

[jellomizer]

Exactly, I love all the woe is me, big brother is out to get me. While you fail to play by the rules set in place.

You want Tax Exempt status, good, make sure you follow the rules to keep it.

Re:No one to blame but themselves

[h4rr4r]

No really a couple thousand a year would likely cover it. They are not that huge an organization.

Re:No one to blame but themselves

[JWW]

This is a scam from the IRS.

They are doing this to many, many non-profit organizations. Quite a few non-profit organizations are being hit by this and the IRS is taking advantage of the general disorganization and small size of a lot of non-profit groups to pocket themselves a tidy sum.

The scam goes like this. New policies enacted by the IRS now require non-profits to fill out a card verifying their non-profit status every three years. Now this is simple and easy to do, but its also simple and easy to forget to do. Its even easier to forget when your organization turns over its treasurer every year or two. Also if your organization is part of a larger national organization, it doesn't matter, the IRS is targeting the smallest unit of every non-profit organization. Membership in larger state and national groups of your non-profit do not cover your smaller group.

The IRS's solution if you forget to register is to allow you to re-register at a later date and pay a FINE.

So that's how the shakedown goes. The IRS is making good money with this enforcement racket that they've created.

Re:No one to blame but themselves

[ShaunC]

> software folks if working with money of sufficient amounts should hire an accountant.

They have one, but he apparently didn't do his job. FTFA:

Stuart Kreitman, the X.Org Foundation accountant and Oracle employee, wrote during the Board of Directors' IRC meeting this week, "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 was taken by surprize that the IRS hit us so rudely. I've had little issues with my own returns and have always found them to be reasonable and friendly."

Re:No one to blame but themselves

[M. Baranczak]

...Oracle employee...

I should have known.

Re: No one to blame but themselves

[iamgnat]

Filing a tax return on time is a complicated rule that's too hard to follow?

No, but the way they keep moving April 15th to a different day of the week every year sure is hard to keep up with!

Re:No one to blame but themselves

[Americano]

Section 6033(j) of the Internal Revenue Code automatically revokes the exemption of any organization that fails to satisfy its filing requirement for three consecutive years. The automatic revocation of exemption is effective as of the due date of the third required annual filing or notice.

( Source )

This isn't an "ambush." What accountant doesn't realize the importance of filing taxes on time? What accountant fails to realize this *three years in a row*? What board trusts their financial matters to an accountant who doesn't realize these things?

This is standard procedure - they failed to file properly 3 years in a row, and so they had their tax exemption revoked. The IRS isn't "springing" anything on them. The IRS isn't "ambushing" them. The IRS is following it's standard procedure - if you want special tax exempt status, there are a few requirements you have to meet. One of these is filing your tax returns in a timely and complete manner. If you fail to do this, you will automatically be de-listed, and you'll receive a polite letter indicating that that has happened. They shouldn't be chasing after people. The agreement when you're granted tax-exempt status is that you will file properly and on time. That's your notice. Failing to do so results in revocation.

Re:No one to blame but themselves

[Americano]

Here's the "ridiculously complex" terms they're expected to comply with:

1) File a Form 990 on time each year.

I'm guessing that X.org would be eligible for a 990-N (< $50,000 gross receipts each year), also known as an 'e-Postcard,' because it can be filed online. Here's the ridiculously complex information required on a Form 990-N:

1) Employer identification number (EIN), also known as a Taxpayer Identification Number (TIN).
2) Tax year
3) Legal name and mailing address
4) Any other names the organization uses
5) Name and address of a principal officer
6) Web site address if the organization has one
7) Confirmation that the organization’s annual gross receipts are $50,000 or less
8) If applicable, a statement that the organization has terminated or is terminating (going out of business)

If by some stroke of fundraising genius, they managed to take in more than $50,000, they'd need to file a 990 or 990-EZ (EZ can be filed as long as < 200,000 per year is collected). The EZ is 3 pages, and looks pretty much like a standard Federal 1040-EZ, just with questions related to income sources for the foundation, instead of an individual.

Some tax laws are stupidly complex. These rules aren't, nor are they particularly burdensome to comply with.

Re:that crazy old IRS

[Anonymous Coward]

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?

Re:Failing to file taxes?

[dicobalt]

To prove that you are still in a position of being tax exempt?

what this means

[jbolden]

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.

X.org forfeits agreement. IRS does job. News at 11

[OzPeter]

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)

Fuck off

[Anonymous Coward]

They didn't file their taxes. It has nothing to do with politics.

Re:Solution

[M. Baranczak]

"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.

Re:X.org forfeits agreement. IRS does job. News at

[jonsmirl]

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.

But the NFL is Non-profit

[Terry Pearson]

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.

Re:But the NFL is Non-profit

[jbolden]

The NFL is not a good example. In 1966 it was explicitly allowed to file as a 501c6. That's black letter law, not the enforcement of a regulation. Congress not the IRS is who you should be complaining to.

Re:not worth it

[bobbied]

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.

Re:X.org tea party front?

[Americano]

I ask this because according to the Tea Partiers, Libertarians, and Fox News, those were the people the IRS was singling out for investigating their non-profit status.

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:

WHAT TIGTA FOUND
The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management:
1) allowed inappropriate criteria to be developed and stay in place for more than 18 months,
2) resulted in substantial delays in processing certain applications, and
3) allowed unnecessary information requests to be issued.

Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months. This was due to delays in receiving assistance from the Exempt Organizations function Headquarters office. For the 296 total political campaign intervention applications TIGTA reviewed as of December 17, 2012, 108 had been approved, 28 were withdrawn by the applicant, none had been denied, and 160 were open from 206 to 1,138 calendar days (some for more than three years and crossing two election cycles). More than 20 months after the initial case was identified, processing the cases began in earnest. Many organizations received requests for additional information from the IRS that included unnecessary, burdensome questions (e.g., lists of past and future donors). The IRS later informed some organizations that they did not need to provide previously requested information. IRS officials stated that any donor information received in response to a request from its Determinations Unit was later destroyed.

The lesson? Sometimes, the government really *is* wrong when Fox News reports they did something wrong.

Oh come off it

[Sycraft-fu]

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.

Tax exempt isn't magic

[Sycraft-fu]

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.

Re:that crazy old IRS

[iamgnat]

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".