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A non-profit sells membership stakes and/or asks for donations as their safest forms of revenue. Selling a product [even as a software license], iirc, is a leg

A non-profit sells membership stakes and/or asks for donations as their safest forms of revenue. Selling a product [even as a software license], iirc, is a legal mess akin to what he is complaining about. https://www.irs.gov/Charities-&-Non-Profits/Unrelated-Business-Income-Tax https://www.irs.gov/Charities-&-Non-Profits/Unrelated-Busine... https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Unrelated-Business-Income-Tax-Exceptions-and-Exclusions https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organ... So you'd need to be careful not to stray out of those exemptions which means you can't pay people among other things. Patio11 really just wants to shift the tax compliance mess onto the OSS which I sort of get but at the same is alot more convoluted than a business donation in the US. Unrelated business income is a very risky business for any sort of non-profit endeavor because it risks you losing your non-profit status. Patio11 is basically saying "Run a for-profit company for FOSS" operations.

skewart 11y ago
From the second link you posted, why couldn't selling a license be considered "selling donated merchandise" (the code is the merchandise) and therefore exempt from being taxed as unrelated business income? Either way, you make a really good point. Just getting tax exempt status and dealing with processing invoices would be a huge hassle for probably the vast majority of FOSS projects, which may have a vibrant community but are really just a handful of people in various parts of the world pushing commits to a repo. It seems like there could be a great opportunity for some kind of platform company that handled all this hassle for FOSS projects that want to offer paid licenses.
- fweespeech 11y ago
  > From the second link you posted, why couldn't selling a license be considered "selling donated merchandise" (the code is the merchandise) and therefore exempt from being taxed as unrelated business income? FOSS expenses are generally related to giving the developers money to do X or for infrastructure. [e.g. Pay for bug bounties, pay for security audits, FreeBSD's utility bills for electricity] At which point, it isn't "donated merchandise" as you are paying for some of the contributions and/or using sales to fund your infrastructure. That is a slippery slope to audits which is the sort of mess that Patio11 is trying to avoid on his end by exporting it to the FOSS end. Except, this time, instead of line items its integral to the entire code for the project in some cases which risks calling the entire project into question. [e.g. security audits, paying for infrastructure] > It seems like there could be a great opportunity for some kind of platform company that handled all this hassle for FOSS projects that want to offer paid licenses. This isn't a SaaS platform opportunity. This is a "You have to pay a CPA and a Non-Profit Tax Attorney" situation to make sure you are on the right side of the law with the entire process from end to end. https://blogs.gnome.org/jnelson/2014/06/30/the-new-501c3-and-the-future-of-free-software-in-the-united-states/ https://blogs.gnome.org/jnelson/2014/06/30/the-new-501c3-and... > The requests for clarification contained mostly non-surprising questions. For example, “Describe whether your organization provides any goods or services for a fee.” (We don’t.) Some were odd: “Will any of your directors or employees reside at your facility [i.e. our office]?” (Ah…no.) > You have a substantial nonexempt purpose because you develop software published under open source compatible licenses that authorize use by any person for any purpose, including nonexempt purposes such as commercial, recreational, or personal purposes, including campaign intervention and lobbying. These are the sort of questions you get asked as part of the 501(c)3 process and this would qualify as "providing any goods or services for a fee" almost certainly. Really, in order to sell licenses like Patio11 would like, you need to be a For Profit entity. You have no chance of going any other direction.
  - snuxoll 11y ago
    Selling a "license" generally denotes a for-profit activity anyway. I tend to avoid the thought of taking "donations" because they are a tax headache for anyone and everyone involved (many people incorrectly assume that any donation is tax-deductible, and I still have to pay income tax on them as I am most certainly not a charitable entity)
    - fweespeech 11y ago
      Many FOSS projects/groups are non-profits. FreeBSD, Apache, etc. This being the case, it made sense to point the obvious problem with the "sell a license" issue. I'm not saying a for-profit is "wrong" but you aren't taking tax deductible donations if you are running a for-profit.
      - Xylakant 11y ago
        no-profits can engage in for-profit activities. They just need to use the profits to achieve their goal. Otherwise no non-profit could be organizing a conference since selling tickets is a for-profit activity.
        infinite8s 11y ago
        Not if they sell the tickets at-cost.
        Xylakant 11y ago
        except for trivial cases you can't sell tickets at cost - there are way too many factors at play and you need some extra budget in case things go haywire (and they will). You want to plan your budget so that the conference is slightly profitable. BTW: Accepting sponsoring is a for profit activity as well - you get money and perform a service in return (advertise the sponsor etc.)
        fweespeech 11y ago
        > They just need to use the profits to achieve their goal. No. That is absurdly wrong. https://www.irs.gov/Charities-&-Non-Profits/Substantially-related https://www.irs.gov/Charities-&-Non-Profits/Substantially-re... > To determine if a business activity is substantially related requires examining the relationship between the activities that generate income and the accomplishment of the organization's exempt purpose. Trade or business is related to exempt purposes, in the statutory sense, only when the conduct of the business activities has causal relationship to achieving exempt purposes (other than through the production of income). The causal relationship must be substantial. The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related. i.e. The activity has to have a causal relationship to the exempt purpose regardless of the profit motive. Good luck convincing people software licenses qualify in the current environment without a CPA and a Tax Attorney managing things end to end. It can be done but not from the angle you claim. It has to be done for the direction of "This is our exempt purpose and by providing X we further that purpose despite the monetary gain to cover expenses."
greggyb 11y ago
I don't see a really good point in the children of this sub-thread to post this, so I'll just go here and hope it gets attention. I'm seeing a lot of contention over selling a license for a product. Would it be a viable workaround to sell installation media? I know OpenBSD sells CDs of its releases, though I am not sure I know the details of that (there seems to be a difference between the OpenBSD CDs and the OpenBSD Foundation).
- fweespeech 11y ago
  Probably but I'm not saying "its impossible" but rather "You need a CPA and tax attorney to cover your ass appropriately" at which point is there enough people like Patio11 to cover that cost? OpenBSD is also Canadian which is neither American or Japanese [which is the part the original parent was talking about] so I don't know their tax laws at all. :/ Individual donations and corporate donations are a course that don't require that level of expertise to execute on as a revenue source. Running a for-profit that sells software licenses is the cheapest way to comply if you intend to sell software licenses as you don't need to pay a 3rd party to prepare taxes for your LLC and advise you on how to keep your 501(c)3 exemption.

skewart 11y ago

From the second link you posted, why couldn't selling a license be considered "selling donated merchandise" (the code is the merchandise) and therefore exempt from being taxed as unrelated business income? Either way, you make a really good point. Just getting tax exempt status and dealing with processing invoices would be a huge hassle for probably the vast majority of FOSS projects, which may have a vibrant community but are really just a handful of people in various parts of the world pushing commits to a repo. It seems like there could be a great opportunity for some kind of platform company that handled all this hassle for FOSS projects that want to offer paid licenses.

fweespeech 11y ago
> From the second link you posted, why couldn't selling a license be considered "selling donated merchandise" (the code is the merchandise) and therefore exempt from being taxed as unrelated business income? FOSS expenses are generally related to giving the developers money to do X or for infrastructure. [e.g. Pay for bug bounties, pay for security audits, FreeBSD's utility bills for electricity] At which point, it isn't "donated merchandise" as you are paying for some of the contributions and/or using sales to fund your infrastructure. That is a slippery slope to audits which is the sort of mess that Patio11 is trying to avoid on his end by exporting it to the FOSS end. Except, this time, instead of line items its integral to the entire code for the project in some cases which risks calling the entire project into question. [e.g. security audits, paying for infrastructure] > It seems like there could be a great opportunity for some kind of platform company that handled all this hassle for FOSS projects that want to offer paid licenses. This isn't a SaaS platform opportunity. This is a "You have to pay a CPA and a Non-Profit Tax Attorney" situation to make sure you are on the right side of the law with the entire process from end to end. https://blogs.gnome.org/jnelson/2014/06/30/the-new-501c3-and-the-future-of-free-software-in-the-united-states/ https://blogs.gnome.org/jnelson/2014/06/30/the-new-501c3-and... > The requests for clarification contained mostly non-surprising questions. For example, “Describe whether your organization provides any goods or services for a fee.” (We don’t.) Some were odd: “Will any of your directors or employees reside at your facility [i.e. our office]?” (Ah…no.) > You have a substantial nonexempt purpose because you develop software published under open source compatible licenses that authorize use by any person for any purpose, including nonexempt purposes such as commercial, recreational, or personal purposes, including campaign intervention and lobbying. These are the sort of questions you get asked as part of the 501(c)3 process and this would qualify as "providing any goods or services for a fee" almost certainly. Really, in order to sell licenses like Patio11 would like, you need to be a For Profit entity. You have no chance of going any other direction.
- snuxoll 11y ago
  Selling a "license" generally denotes a for-profit activity anyway. I tend to avoid the thought of taking "donations" because they are a tax headache for anyone and everyone involved (many people incorrectly assume that any donation is tax-deductible, and I still have to pay income tax on them as I am most certainly not a charitable entity)
  - fweespeech 11y ago
    Many FOSS projects/groups are non-profits. FreeBSD, Apache, etc. This being the case, it made sense to point the obvious problem with the "sell a license" issue. I'm not saying a for-profit is "wrong" but you aren't taking tax deductible donations if you are running a for-profit.
    - Xylakant 11y ago
      no-profits can engage in for-profit activities. They just need to use the profits to achieve their goal. Otherwise no non-profit could be organizing a conference since selling tickets is a for-profit activity.
      - infinite8s 11y ago
        Not if they sell the tickets at-cost.
        Xylakant 11y ago
        except for trivial cases you can't sell tickets at cost - there are way too many factors at play and you need some extra budget in case things go haywire (and they will). You want to plan your budget so that the conference is slightly profitable. BTW: Accepting sponsoring is a for profit activity as well - you get money and perform a service in return (advertise the sponsor etc.)
      - fweespeech 11y ago
        > They just need to use the profits to achieve their goal. No. That is absurdly wrong. https://www.irs.gov/Charities-&-Non-Profits/Substantially-related https://www.irs.gov/Charities-&-Non-Profits/Substantially-re... > To determine if a business activity is substantially related requires examining the relationship between the activities that generate income and the accomplishment of the organization's exempt purpose. Trade or business is related to exempt purposes, in the statutory sense, only when the conduct of the business activities has causal relationship to achieving exempt purposes (other than through the production of income). The causal relationship must be substantial. The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related. i.e. The activity has to have a causal relationship to the exempt purpose regardless of the profit motive. Good luck convincing people software licenses qualify in the current environment without a CPA and a Tax Attorney managing things end to end. It can be done but not from the angle you claim. It has to be done for the direction of "This is our exempt purpose and by providing X we further that purpose despite the monetary gain to cover expenses."

greggyb 11y ago

I don't see a really good point in the children of this sub-thread to post this, so I'll just go here and hope it gets attention. I'm seeing a lot of contention over selling a license for a product. Would it be a viable workaround to sell installation media? I know OpenBSD sells CDs of its releases, though I am not sure I know the details of that (there seems to be a difference between the OpenBSD CDs and the OpenBSD Foundation).

fweespeech 11y ago
Probably but I'm not saying "its impossible" but rather "You need a CPA and tax attorney to cover your ass appropriately" at which point is there enough people like Patio11 to cover that cost? OpenBSD is also Canadian which is neither American or Japanese [which is the part the original parent was talking about] so I don't know their tax laws at all. :/ Individual donations and corporate donations are a course that don't require that level of expertise to execute on as a revenue source. Running a for-profit that sells software licenses is the cheapest way to comply if you intend to sell software licenses as you don't need to pay a 3rd party to prepare taxes for your LLC and advise you on how to keep your 501(c)3 exemption.