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The New 501(c)(3) and the Future of Open Source In the US
An anonymous reader writes: If you're involved in the free and open-source software movement — especially in the United States — you may want to read through this, as long as it may seem. It appears that the United States' Internal Revenue Service has strongly shifted its views of free and open-source software, and to the detriment of the movement, in my opinion. From the article: "The IRS reasons that since Yorba’s open source software may be used for any purpose, Yorba is not a charity. Consider all the for-profit and non-charitable ways the Apache server is used; I’d still argue Apache is a charitable organization. (What else could it be?) There’s a charitable organization here in San Francisco that plants trees throughout the city for the benefit of all. If one of their tree’s shade falls on a cafe table and cools the cafe’s patrons as they enjoy their espressos, does that mean the tree-planting organization is no longer a charity?"
You'll only give them ideas.
From the wikis: charitable, religious, educational, scientific, literary, testing for public safety
Why do you need to be charity? Why not educational/scientific?
I should use this sig to advertise my book ISBN-13 : 978-1501515132.
The charity plants trees, the city contracts out tree maintenance - limited profit.
Open SW developed, released by charity, for-profit service organization ecosystem springs up to support - loads of profits to companies that contributed resources/finances to development.
I don't agree with IRS in this case, but their reasoning is approximately sound.
You're looking for quotes? See my journal.
...the IRS just thought Yorba was associated with the Tea party and conservatives and everyone knows those people can't be a charity! So it only made sense for the IRS to revoke their charity status.
If the IRS gets less money then it can't be charity.
Also, they can help you identify the correct party to vote for.
So... a non lawyer got a request from the IRS to explain his charitable status, they decided he wasn't a charity, and now he's posting to a blog that the entire open source world is coming to an end? I think dude needs to spend more time getting a lawyer and less time posting to slashdot.
I HATE the IRS with a passion. This stuff should be easy. But the fact of the matter is, it's not. You need legal representation if you're going to be a 501(c)
Then we have this: "We have no plans to appeal their decision."
ok... so what's the point of this post? If you're agreeing with them, I don't get it. If you're not agreeing with them, but just rolling over, then you deserve what you get.
The 501(c)(3) system is extremely unfair. It is basically a government subsidy to organizations that are unwilling to compete in a free market. And because a non-profit doesn't pay taxes, the tax burden falls on the rest of society. Historically nonprofit charities are seen as private individuals fulfilling a role so that government doesn't have to, but is your pet Linux project really so important that you have to jack taxes up for your fellow citizens?
If the cafe, through it's donation, is able to direct where the charity puts it's trees AND the charity places the tree in a location solely for the benefit of the cafe, then that charity is (in my mind) no longer a charity, it is at least a part-time landscaping firm.
Ken
The IRS falls under the Executive Branch, and the current executive has not been shy about using the IRS to aid his friends, and hurt his enemies.
I have to suppose he considers open source an enemy.
Hmmmmm.... would this benefit corporate interests? When the government makes any decision that is the only question that needs to be asked. The only time the answer is in doubt is if there are no corporate interests or the corporate interests are exactly balanced.
So while I agree with the sentiment about this being deeply unfair, this is not thereal issue. If anyone wants to be upset about this issue and is willing to do something about it then join the movement to get corporate money out of politics; full stop.
At MIT, lot of research is done and published and the results can be used for anything including making weapons of mass destruction by terrorist and dictators. How come MIT research is tax exempt? In fact, both MIT and Yorba are involved in doing things which are good for the whole humanity without directly profiting from it and hence both should qualify EQUALLY. If one is banned then the other should be as well. In fact MIT and other educational institutions often directly work with commercial organizations and sell their IP for profit and still they are considered charity. If Yorba's purpose is to develop software specifically for commercial organization such as banks or retail stores, then it would have been a different matter.
Conservatives are less likely to use it then liberals. The whole IP monopoly concept is something the conservative love.
When you cant win, ad hominem.
I'm glad the IRS is looking into 501(3)(c) organizations that really have no standing to be classified as such. While they're at it, why don't they force the B&M Gates Foundation to stop pretending to be a "charity" and reveal it as the for-profit tax haven that it is? Sure, they throw a lot of money at short-term problems that might help people in the short term, but it seems their primary mission is to establish a dependency on western pharmaceuticals by developing nations. If that's not for-profit, I don't know what is. Capitalists are lining up at the gates (no pun intended) to help push along this tax haven and further its reach. It's disgusting, really.
I think everybody is missing the logic of the decision.
This probably isn't concerned with whether an organization like Apache is doing charitable work. All things being equal, the IRS would undoubtedly accept that.
But all things aren't equal, because you have an army of lawyers and MBAs who spend all day thinking about tax avoidance strategies, in an epic arms race with the IRS.
I suspect the root of the issue is companies taking deductions on contributions to open source projects, when the projects are really simply serving and benefiting the companies "donating" the money.
So, for example, take Android. It's possible that Google is (or could be, if they were savvy enough) taking huge deductions on Android by funding the project through an "open source" shell organization.
"""
There’s a charitable organization here in San Francisco that plants trees throughout the city for the benefit of all. If one of their tree’s shade falls on a cafe table and cools the cafe’s patrons as they enjoy their espressos, does that mean the tree-planting organization is no longer a charity?"
"""
What if the tree fell onto the table with patrons sitting there? That sounds like a legal charity case to me.
Open source has to worry about its source tree falling onto patents among other things as well, right?
Looking back, I should have been a lawyer; not a computer guy.
like FIFA or IOC. Do they have to pay income tax? Of course not.
On the contrary, liberals love a monopoly too, just for the government.
While this might seem to suck, I know from first-hand inquiries that it is not possible to allow a charitable organization such as a church, for example, that has a kitchen to allow their kitchen to be used even by one of its own members for any kind of commercial purpose, even if the church receives absolutely *NO* benefit from said use. Allowing it would jeopardize the church's tax-exempt status, so it's not allowed.
Really, if you want to be a charity, then you can't allow your resources to be used by people with commercial interests. Sucks for open source organizations that want to act as charities, and I can see it being detrimental for some donations because I know that getting a tax exemption does motivate some people to donate.
But bear in mind that if tax-exemption were really the only reason or even the primary reason why people might donate to a cause or organization that they may believe in, it's highly unlikely that something like crowdfunding would ever work, and we have plenty of evidence to show that it does.
File under 'M' for 'Manic ranting'
This is scary but ultimately a decision that needs to be appealed.
I own a small company that works with Drupal. I am a member of the Drupal Foundation and give as generously as possible to their events.
Similar determinations have been made by the IRS before and challenged successfully. It is important that Yorba stands up for themselves on this matter and establish the scientific and educational validity of their claim to 501 c3 status.
There is an important point in the lifecycle of every open source project, where it goes from being a small hobby to something having an ecosystem that must be managed. It's essential that there is a way to provide fiscal support for groups springing up around the management of these projects without creating a tax burden.
The IRS judgement pertains really seems to only include an established software project, and not one that is supported by a small community. I am not sure there is a way for them to make a determination between the two. IANAL, but I am sure this is important in distinguishing the legitimacy of 501c3 claims.
Just remember - the National Football League is a 501(c)(3) non-profit.
Hush now, if a tax law has been approved, both agreed to it. Given that they can't agree on the time of day, but have agreed to focus on 501(c), we can assume this annoys all the rich people, not just some ideological faction of them.
My read of this is that they applied as a charity, but the IRS's definition of a charity requires that you be serving a distinct, disadvantaged group of people. A quick look at the software that Yorba produces (http://yorba.org), does not lead me to believe that their software would particularly benefit any specific disadvantaged groups more than other people.
So by the rules that the IRS is working on, it does appear that they do not qualify as a charity. And to be honest, this is a correct definition, they are not running a charity. Now there is a valid question about whether there should be a method for them to run a non-profit without being taxes, but they are not a charity.
When I was on a board that was incorporating a not for profit organization it was enlightening to hear that while 501(c)3s dominate the conversation, they aren't appropriate for most causes. Part of my understanding is that a 501(c)3 is a public, mutual benefit corporation where all assets are actually owned by the public, should push come to shove. It seems like for structure, ownership, and purpose, something like a 501(c)4 or (c)8 would be more appropriate. Of course, 501(c)3 has been baked into so many things, that there are orgs that will not donate unless you have a (c)3, even though there are other tax-exempt designations that also give you a break. Of course, IANAL, YMMV, Your state sucks and works differently, etc, etc.
The only thing that can jack up taxes is the government itself.
Face it and move on.
umm, remind me who is the current MPAA CEO and chairman? Oh yeah, former liberal Democratic Senator, Chris Dodd. Big Media companies have long been the constituents of many liberal dems in Congress, far more than that of Republicans
Non-profits? sure. Charities, hell no.
Really? The RIAA and MPAA are both products of the Hollywood ultra-leftists.Capitalists are, in generally, fairly happy with the core of patent law, that it's a time limited monopoly.
Which clearly explains the dominance of conservatives in heavily protected industries like the film & music industries. Because only conservatives love intellectual property.
That's a flavor of non-profit which is not a charitable organization.
Disclaimer: I am in no way a member of the legal profession nor am I trained in law.
There is a reason we consider the IRS to mean the "Infernal Revenue Service"... They come directly out of Heck(sic). I'd say He-double-ell, but that would be an insult to Satan and his minions! Heck is that place between here and Satan's domain, but they have no rules other than what they make up. At least with the Prince of Darkness, you know where you stand. With the Prince of Murkyness, your guess is as good as any!
Conservatives are less likely to use it then liberals. The whole IP monopoly concept is something the conservative love.
Yes, it's likely that a person would believe that if they paid attention to what politicians say rather than what they do.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
If only Yorba had a SWAT team instead of just some software...
Pound! Bang! Bin! Bash! is this a shell script or a Batman comic?
FTA - "We have no plans to appeal their decision."
Do something about it or stop complaining.
If all the organization does is release code under an open source license, then they're not collecting money. If the organization is charging for services relating to that code, then there's something to tax.
If my garage inflates tires, I'm using a free resource (air). My garage might even inflate tires for free (charity) to get people to come in. That doesn't make my garage a charity.
If the organization doesn't collect money (or turn a profit), then there will be no income taxes to pay. It sounds like some accountant was putting a sticker labeled "apple" on a squash and claiming it was an apple. Somebody at the IRS caught the fudging...
The IRS isn't necessarily saying Yorba can't function as a not-for-profit, but that it doesn't qualify as one under section 501c3. There are other forms of not for profits that may be more applicable. Personally, I would never have thought of Yorba or the other entities listed in the summary as charities, not for profits, yes, just not a charity. The two are not interchangeable terms.
The U.S. is becoming a country in which only the rich get what they want.
Fuck the IRS. Those filthy niggers are the most corrupt organization in the world. An arm of the federal reserve cartel, the IRS did not exist before 1913.
The United States people should take back it's sovereignty from the parasitic european and american bankers who have raped it for over 100 years.
Here's a starter list of said treasonous parasites:
http://en.wikipedia.org/wiki/List_of_banking_families
They are not the product of "ultra-leftists". They're the product of the studio owners, who are most definitely capitalists.
And patent law has zilch to do with copyright.
501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.
They applied under charity, education, and science. Scientific seems the best bet. By providing source code you could say they are advancing computer science. But it is a stretch. The IRS instead saw Yorba as a provider of free stuff. Free stuff is nice but it isnt' advancing science or education. Free stuff is only charity when it is provided to a disadvantaged group of people according to the IRS. Note that environmental activism does not appear in that list. I don't think planting trees would quilify at all as a non profit. (unless it was done in a disavantaged neighborhood)
If we could get people educated and supportive of the FairTax, these types of problems and discussions would be rendered moot. No IRS, no tax-exempt groups (because there's no need for it), no political power to be wielded or abused.
The RIAA/MPAA have paid off politicians from both parties. They just happen to have more sway over several prominent Democrats because the film and music industries are centered around Los Angeles. But that has less to do with ideology as who pays the bills.
Why should an organization that makes no money pay taxes? What kind of "burden" are they imposing by merely existing?
Without some reasonable crackdown, anyone could set up a 501(c)3 that donates software to various entities and - in an unrelated coincidence - receives donations from those same entities (or related entities).
To put it more concretely, Yorba receives money for software development - often but not always by the same people who use the software. This is a normal activity of for-profit companies. You aren't allowed to take a for-profit company, rename "license fees" as "donations", and claim tax exempt status (which has twice the expected effect - once for the "donor" who gets to deduct his software purchase and again for the "charity" which is typically exempt from all sorts of other taxes).
If most of the money came from sources other than the software users - as is in fact the case with people like the Apache Foundation - that would probably be different. If your company looks like a for-profit enterprise (or alternately a hobby) in everything except name though, its going to be treated as such by the IRS.
You're special forces then? That's great! I just love your olympics!
The logic used by the IRS is dubious and daunting. That someone could potentially use something you are giving away for a commercial purpose... does not make sense as reason to deny exemption status.
The propagating effects could be devastating, even beyond open source software. This is basically a blank cheque for them to deny exemption arbitrarily and extrajudicially; if you dig far enough and raise the threshold for degrees of separation as high as you want, you could come up literally any reason you want.
I'm also curious what IRS stands to gain from this decision. An organization that makes no profits pays no taxes. So, what's in it for them to decide this way?
Unfortunately, this is a reality for some entities that choose to do-it-yourself with 501(c)(3) applications rather than seek legal advice. An attorney can guide an organization through the very precise and specific requirements necessary to acquire federal tax exemption status--or, help an organization to find other legal methods to similarly achieve its objectives.
Even if 501(c)(x) status was approved, an entity must still typically maintain that status (along with any state or other requirements). Many often confuse the non-profit or not-for-profit entity, which is almost always organized under state law, with obtaining federal 501(c)(x) status, which attaches to the entity. These are two different processes with extremely different requirements and different requirements to maintain.
I don't want to sound like an attorney-apologist. But 501(c)(x) status can be a challenging process--as it should be because it is supposed to be an extraordinary classification. Most realize that anyone can download the forms and possibly even put something in the boxes. But that does not mean that one fully understands the legal aspects of the task or risks.
But rather than reading too much into a single IRS determination letter, hopefully, others can learn an invaluable lesson--and avoid a not-atypical 4 year wait (especially if the initial application requires multiple rounds of clarifications because it was not completed adequately) and potential frustration of donors.
And it should be eliminated now. It's no more than a bunch of criminals.
First, your delusion about the word "subsidy": When the government GIVES you money (and NOT as payment for a service) THAT is a subsidy. When the government does not take money from you THAT is NOT a subsidy. A Tax cut/break is NEVER a subsidy. It does not matter if the government decides it still needs the cash and gets that cash elsewhere... YOU being allowed to keep YOUR money is NOT a "subsidy" unless your brain is completely pickled in Marxist fluids
Second, Not all "Tax exemptions" are the same. Organizations filed as 501c(3) like the poster tried may indeed collect tax-exempt donations (money that was not taxed) but there's nothing saying all their money WILL be pre-tax cash. Organizations filed as 501c(4) get non-tax-exempt donations (the donors have already paid the tax) and THIS is the type of organization the TEA Partiers were filed as. In both cases, the organizations are applying not to be taxed on the money they collect (which would be a double-tax in the 501c(4) case) since they are not operating to generate revenue (they're not "for profit")
In what bizarro world do you live where the automatic assumption is that if government cannot add a NEW TAX to a NEW ENTITY (thereby increasing cashflow to the government) it MUST then increase taxation on somebody else????? In such a world, the default idea is clearly that all money belongs to government and the people only have what they have because government (temporarily) lets them hold things.... until its needs grow large enough that it must sieze them. That's 180 degrees out from the system our founders created.
Just do what corporations do when they have tax problems, off-shore to a more tax beneficial location. You know when the Government start losing business this way they come crawling back with all types of loopholes.
+2 Funny and insightful
First, your anti-gay slur stands out (you hit the TEA Party people with a gay sex label, which you obviously MEANT as a slander, therefor you are indicating your negative view of that gay sex practice - you homophobe) Oh, I suppose as a liberal you claim the "Alec Baldwin" defense... you can use anti-gay jargon and NOT be a bigot because you're a liberal...
Then you lied. You say it's a FACT that the TEA Partiers got their status. This is not so. A number of TEA Partiers after 3 years, answering questions including things like "list all the books you have read" and "include the contant of any prayers", finding that their DONORS were suddenly getting audited at a high rate, getting the ATF, FBI, and other federal agencies suddenly investigating them, etc simply gave up. The false narrative that "progressive" groups were targetted too is straight from the DNC... the Inspector General did indeed find that the IRS also sorted-out the progressive groups (and liberals pushed that tidbit iin every press outlet they control) BUT the report goes on to say that they then ACCELLERATED the approvals of the progressive groups. Barack Obama's brother got his approval in under 50 days and it was RETROACTIVE!
Take your left wing propaganda back to one of the myriad of liberal web sites funded (fully or partially) by actual NAZI collaborator George Soros.
SoylentNews has decided to avoid non-profit status due to the demands it puts on the organisation, so they're now trying to set up as a slightly more normal "we don't actually want to make money" benefit corporation.
Ask me about repetitive DNA
Every Sunday morning, you worship your pillow.
Q: What does the "B." in Benoit B. Mandelbrot stand for? A: Benoit B. Mandelbrot
Of course, if we just did away with the income tax altogether, then this problem would never come up. It's not like altruists only do it for the tax deductions...Besides, income taxation is really just slavery anyway. Wouldn't be great if we had to hold bake sales to fund gov't overreach?
Consider the high percentage of University/College grads who go on to work for companies.
Sometimes boldness is in fashion. Sometimes only the brave will be bold.
It's about being for profit or not.
This is another example of our government officials who speak out in public but have no damn clue what the hell comes out of their mouth.
The W3C is not a 501(c)(3) organization. They are a regular corporation that just doesn't happen to make a profit, so no taxes. It is actually easier that way.
I'm not quite familiar with tax systems in the US, but over in my country there's a definite legal difference between a non-profit and a charity (the most important one being that tax rules are different for profit vs non-profit, but so are allowed income streams, and when you donate to an 'official' charity *you* get a tax break for that donation). Profit vs non-profit is mostly about how you make money, and charity is what your main activity is centered around. Obviously most OSS-based organizations would not be an actual charity (though some could). Is 501(c)3 more about the latter, or is it supposed to cover both (or is such a distinction not made at all)?
A tax cut, unfairly given to one company and not its competitor IS unfair, IS corrupt, IS cronyism.... but it IS NOT A SUBSIDY.
For some reason, younger generations of Americans all seem to have not been taught the proper meaning of words and the importance of using them properly. Using words improperly, and tolerating people in the political arena doing it, are BAD and lead to an Orwellian disaster in which the political class increasingly manipulates the public.
Not everything government does unfairly involving money is a "subsidy". A subsidy is when government gives somebody money other than as part of a normal business transaction. Government giving a bunch of money to Tesla "for electric cars" is a subsidy. Government buying some electric cars (that it otherwise needs) is NOT a subsidy (it MIGHT be a corrupt scheme to funnel money to Tesla, depending on the reason those cars were selected and the prices paid etc... but it's NOT a subsidy). Government giving a pile of money to Exxon is a Subsidy. Government buying a bunch of oil from Exxon for use in Navy ships is NOT a subsidy. (it MIGHT be corrupt depeding on the selection method used to pick the vendor, the price paid etc, but it's NOT a subsidy)
Not everything you have a desire (or even a RIGHT) to do is a "Constitutional Right". Constitutional Rights are those rights specifically-mentioned in the Constitution. We have "Constitutional rights" to "free speech", a "free press", "freedom of religion", a right "to keep and bear arms" and so-on. We might all have the right to attend a birthday party for a parent or the right to swim in the Pacific ocean as "natural rights", but these are NOT "Constitutional Rights". This does NOT make them less valid, they're just different ... our founders believed we all had many natural rights, and they chose to specifically list some they considered vital in the Constitution as a sort of "double-guarantee"...those we consider our "Constitutional Rights".
Capitalists are, in generally, fairly happy with the core of patent law, that it's a time limited monopoly.
There shouldn't be any monopoly at all.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.