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