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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.
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.
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
A couple points - first off, there were hundreds of Patriot/Tea Party groups that applied, not just one monolithic Tea Party organization - each application was unique and individual.
I'm not sure how many of what you refer to as 'Occupy' applications were submitted, by your use I assume it was one.
The Occupy group that got a denial is actually years ahead (literally) of several dozen Patriot/Tea Party organizations that are still waiting YEARS LATER for a decision up or down on their application... So what? A group can not appeal a decision until it is rendered, by denying the Patriot/Tea Party groups a decision, they denied them the chance to appeal, and the appeal process would overturn baseless political denials. A delayed decision is effectively an unappealable denial - your 'Occupy' group, by getting a denial, could appeal - the Patriot/Tea Party groups can not.
Your lone counter-example proves/dis-proves nothing.
BTW, did your 'Occupy' group have their private donor information shared by IRS employees with other, non-governmental groups? Tea Party groups had their donor lists handed over by the IRS to Democrat groups...
You would benefit from an expansion of your news sources to include, maybe source documents and/or actual, under-oath testimony from the people involved...
Ken
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.
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.
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.
the current president is mega-corporate bitch;
Unlike which of the previous several?
You're looking for quotes? See my journal.
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.
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.
There are many kinds of Charitable organizations. But 501(c)3 does not necessarily mean a Charity as you describe, though it does allow you to take donations. Most of the 501(c) organizations are pretty specific in what they may serve; 501(c)3 is the exception in that it is a lot more general.
The Wikipedia Article on 501(c) organizations is actually pretty good. Of course, you can also go directly to the IRS information too, but I find the Wikipedia article to be easier to read.
Truth is like the sun. You can shut it out for a time, but it ain't goin' away. - Elvis Presley (source: imdb.com)
Like any tax authority anywhere in the world, the first thing that the industrialist and "owning" classes do is to minimise their own liabilities and obstruct auditing and regulation (off-shoring, tax havens, and shell companies being examples). The next thing is to increase the liabilities of any emerging competitors and possible competitors, i.e. everyone who isn't already a huge corporation and that they can't buy to add to their portfolios (FOSS means no IP portfolios to add by acquisition as Oracle found out). The ruling elites rely heavily on controlling tax legislation for their own benefit and to ensure as little competition as possible in any way they can; increasing liabilities, increasing the complexity of the tax system and tax laws, increasing the costs of ensuring compliance with tax laws (easy and cheap to a huge corporation, difficult and expensive for small organisations), etc. It really doesn't matter which administration is in office, the process will always be more or less the same: regulatory and administrative capture. The best way we have so far of preventing regulatory and administrative capture is transparent participatory democracy. The current adminsitration in the USA appears to be decidedly anti-transparent participatory democracy. I doubt the next administration, whoever gets in, will be any different. Goodbye democracy, it was nice while it lasted.
Yes, it is called Spoliation of Evidence.
The legal concept that if you cannot provide (or destroy) evidence that is know to exist, then that failure is proof you have something to hide.
Since the emails were known to exist, were promised to Congress, and then later "lost" is proof that there were emails that proved the IRS was being used for political purposes.
Add to that the unusual number and timing of visits to the White House by IRS officials tied to those emails, there is sufficient evidence to show the linkage.
Never answer an anonymous letter. - Yogi Berra
One more point: the IRS had an obligation by default to keep those emails, the fact that the were negligent in doing so points to the gross incompetence, not the criminality.
Never answer an anonymous letter. - Yogi Berra
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)
The U.S. is becoming a country in which only the government gets what they want.
TFTFY
"I say we take off, nuke the site from orbit. It's the only way to be sure."
The U.S. is becoming a country in which only the rich get what they want.
The U.S. is becoming a country in which only the government gets what they want.
And the difference is.....?
I recommend reading the excellent IRS writeup posted at http://yorba.org/docs/IRS-dete... by the way.
One of the key phrases:
Developing Open Source Software Is An Activity Ordinarily Carried On As An Incident To Commercial Or Industrial Operations
In a nutshell, Yorba failed to properly differentiate themselves from a traditional for-profit company. As a for-profit software company owner, I'd say that that's a fair statement. If Yorba was actively engaging in outreach to provide free software to schools (and then incidentally released it to the public), again that would be different.
When you apply for 501(c)3 status you're asking that the general public subsidize your business. Its not unreasonable to require a significant burden of proof before such a federal subsidy is granted.
You're special forces then? That's great! I just love your olympics!
How about:
Lost at C:>. Found at C.
I say this as one who just last year successfully set up a 501(c)3 for a community band, receiving a favorable determination letter, with no request for follow-up, in under 4 calendar months (which included the short government shutdown).
Yes, there is precedent and there are already lots of community bands, but you could say the same thing about software. And it was obvious from reading all the IRS material that it would be quite easy to screw up even a community band application. If I were doing a software 501(c)3, I think I would have been even more careful to stress the things that the IRS was looking for, and might have even told the other board members that we should amend the bylaws and/or do a few other things (like hold educational events or write scholarly treatises or whatever) before submitting the application.
FWIW, I completely disagree with all the people saying "well, duh, it should be a non-profit" because they distribute free software. A lot of for-profit companies distribute free software, too, and the IRS deals with innumerable shysters who try to turn their business into non-profits in all fields of endeavor.
Although, as I said, you do not need to be a lawyer to get through the process, if I had received a request for more information from the IRS for more information, I would have viewed that as a huge red flag that I was on the verge of fucking it up, and would have spent a few hundred dollars on an attorney at that point to try to salvage the $400 that I had to give the IRS for the application.
But obviously, that wasn't the mindset of the people at yorba. From the yorba foundation blog post:
The fact that they found this question odd is ample evidence that they did not try to get into the mindset of the IRS before sending the initial application, and the fact that they apparently still find it odd means that they failed to take the request for more information seriously enough and still weren't trying to get inside the IRS's thinking. Given that, it's not surprising, not news, not corporatism, not david-v-goliath, and certainly not the end of the world for free software as we know it that this particular application was rejected.