8 ms·

The new 501(c)(3) and the future of free software in the US

gcb0 12y ago
reading that i almost wish they deny status to everyone writing coffee under bsd and mit and only allow gnu gpl :)
codezero 12y ago
It sounds like the gist is that they were rejected because the code they create might be used by entities that are not nonprofits/charitable. One one hand, this seems crazy if the software created is given -- for a bad metaphor: imagine a charity being unable to feed people because those people may use the energy they get from that food to do non-charitable works. Separately, and to play devil's advocate, I can kind of see the logic here: it creates a loophole through which re-usable work that is funded under tax exempt status can then be used by anyone, so you could imagine some org donating some money to get some particular work done, then getting it and using it without having to have paid tax on the equivalent work that would have been done if they paid for it. Going back to the food metaphor, it might be like a charity offering free food to anyone, rather than just to those who have a particular need. I think that such a charity might run into a similar rejection, but I don't know. Like I said, I think it sounds crazy, but hopefully this draws more interested parties into the discussion.
- spenvo 12y ago
  The NFL is considered a non-profit organization by the IRS, yet all of the teams which associate with its branding reap enormous profits. How should all organizations which happen to open-source code automatically be "for profit" just because some other companies might use such code for commercial purposes? The two examples are very similar but the NFL is non-profit. If the precedent is set, the damage to the FLOSS movement would be real and lasting.
  - codezero 12y ago
    To be clear, there are significant differences with the legal classifications of various non-profits. 501(c)(3) is much different from 501(c)(6) (the NFL is (6)) I am not a lawyer so I don't know what the differences are, but it's possible/likely that if someone was going for a different kind of non-profit the rules would change dramatically, so they can't quite be compared apples to apples. see: https://en.wikipedia.org/wiki/501(c) https://en.wikipedia.org/wiki/501(c)
    - thefreeman 12y ago
      So I was curious about this and looked up some more information on it (the NFL tax exemption). Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual. http://sportsfans.org/2012/03/why-is-the-national-football-league-given-tax-exempt-status/ http://sportsfans.org/2012/03/why-is-the-national-football-l... One more needle to add to the haystack of bull shit from my government I put up with.
      - deleted 12y ago
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  - dragonwriter 12y ago
    > The NFL is considered a non-profit organization by the IRS, yet all of the teams which associate with its branding reap enormous profits. The NFL is a 501(c)(6) trade association, so that's expected. Its not a 501(c)(3) charity. The rules are completely different.
  - snowwrestler 12y ago
    The NFL is not a great example as they have a specific exemption that Congress wrote into the law just for them.
    - 12y ago
- smsm42 12y ago
  >>> so you could imagine some org donating some money to get some particular work done, then getting it and using it without having to have paid tax on the equivalent work that would have been done if they paid for it If they donate the result to be used by everyone, not only this org - what's wrong with that? If a company builds a public park and this company's employees, along with others, can visit it - is it bad? If a company builds a hospital which accepts, among others, this company's employees - is it evil?
  - codezero 12y ago
    I am not justifying anything but I think that the target audience of the tax-free work is important to the IRS when classifying the organization. Like others have said, they may get exemption with some tweaks, but simply "not being bad" doesn't make it good, if you think of it from the point of view of a loophole that other companies can take advantage of, it's important to the IRS to avoid loopholes like that, it has nothing to do with good or evil, just with money and avoiding taxes :)
    - smsm42 12y ago
      Why it is a loophole? I thought giving stuff to the public is the whole point of the nonprofit status, why you're calling it a "loophole"? Yes, of course businesses benefit from it too - they are part of the public, businesses are run by people and serve people, so whatever makes people's lives better helps businesses too. If the government says that it would not tax activities which benefit the public, it is extremely weird to say "unless of course it benefits all the public and not just narrow subset of it". I'd say it makes more sense to encourage activities which benefit everybody, not suppress them. As is it sounds like IRS would be happy to welcome an organization that gives software for free only to people living in New York and unemployed, rather then giving it to everybody. I don't see how it makes any sense - the benefit for the society is clearly larger in the latter case and that's the whole point why nonprofit status exists in the first place!
      - codezero 12y ago
        It isn't inherently a loophole, I never said that, I said from the point of view of the IRS it could open up a loophole, possibly. Giving to the public isn't the point of nonprofit status, there are lots of different kinds of nonprofits, and the one under discussion here is a very specific kind, and in order to qualify for it, the IRS requires a lot of specific things. From what I understand, the issue the IRS has is the fact that the recipient of the charity was too broad, and to qualify for 501(c)(3) status, the recipient of the charity should be more targeted. Think of it this way, I could give away free food all day, but if I'm doing it at the top of a ski resort, it probably doesn't help the kind of people who need free food and my case for being considered a charity may be diminished. There is nothing to say that companies doing open source can't qualify, many have, and they obviously did so with better lawyers and maybe a more concrete/directed plan as to who would receive the charity they are offering. The IRS isn't concerned with the benefit to society, that's not what they are regulating, they are regulating the flow of money and exemptions to taxation. Software that is tax free and used by entities which may exploit that are what the IRS is probably considering.
philipn 12y ago
I'm the ED of a 501(c)3 non-profit (http://localwiki.org http://localwiki.org), and when we applied for our (c)3 status we got some flack along these lines, as well. Here's my advice to the Yorba Foundation folks: If you haven't received your final rejection, you can appeal. Don't try and do this yourself. The post says they spoke with folks at the Software Freedom Center, which is great, but I highly recommend finding a specialized attorney who's seen lots of applications and knows the right angle. Hire an attorney who specializes in obtaining 501(c)3 status. We made this mistake early on, thinking we could work through the NOLO book and apply ourselves. It cost us. For around $1k you can find a good non-profit attorney to help. We got flack for the open-source thing, too. Our original exemption application was basically "Hey, we're a charity! We give things away for free and release open source code, which can be used by everyone!" Depending on the IRS agent assigned to you, you might get flack for this as well. Generally speaking, they may not like that a for-profit business can use your organization's by-product to make lots of money for themselves. We spent some time explaining how OSS worked to the agent, and was able to convince him that because (most) of our OSS is copyleft, that it would be a continually-free-and-open good, not a private benefit. Nevertheless, just releasing OSS is NOT an exempt purpose. If you read the IRS regulations, they are very specific as to what a core exempt purpose is. You'll need to pick one that fits best. Generally speaking, it's 1) Church stuff 2) Scientific advancement and research 3) Furthering of the arts 4) Education 5) "Charity," meaning helping people who are disadvantaged in some way 6) Some others that I'm not remembering. Most OSS 501(c)3 don't get exemption by just releasing open source software-- they get exemption by being an educational institution. So you may want to go that route -- the organization's core exemption is the creation of educational materials that help education members of a particular community in XYZ ways. This is what we ended up doing -- we're classified as an educationally-exempt organization. If you look up the 501(c)3 apps of some other OSS non-profits you'll see similarly -- e.g. Plone Foundation is set up as an educational organization. Edit: If you'd like to take a look at some of our back-and-forth with the IRS agent at the time, check out the page here: http://localwiki.net/org/Historic_501%28c%293_application_process http://localwiki.net/org/Historic_501%28c%293_application_pr... You'll see his response was similar to yours, but we decided to pursue educational exemption and were granted on that basis in the end. Also, you can call up the IRS Agent assigned to you and talk to them about the application, which can be extremely helpful.
deleted 12y ago
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jcalvinowens 12y ago
Quotes From the IRS letter to Yorba: > 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. By this logic, all non-profit educational entities should be disqualified because things people learn through their programs might later be used by those people to make a profit. > public works must serve a community. Open source licensing ensures the Tools are accessible to the world. We have not found any authority for the proposition that the world is a community within the meaning of § 501(c)(3). I understand that there are probably real legal reasons for the IRS saying this... but that's bordering on inanity worthy of the Onion.
titanix 12y ago
Private corporation seizing other's domains, non-profit organization unable to exempted from taxes, US gov wanting to access US-based company data on foreign data center, PRISM, etc. it seems the US is building a strong negative law environment against its own tech firms. If only Europe were to take take this opportunity to become more attractive... but I haven't any faith our leader will do it.
- aikah 12y ago
  (I didnt downvote you,what's up with people downvoting for the sake of it?) There are weaker software patent laws in Europe,they exist but are very limited. On the other hand Taxes are generaly higher,employement cost is higher and VC funding is close to non existant.But you might get financed by public money(with strings attached and a lot of paperwork ) So it's a trade-off. From a pure "capitalistic" perspective the situation is better for startups in USA in the west coast.And since Europe is not really a country,it's harder to reach all European markets(different languages,cultures,fiscal policies,laws...).In USA everybody talks English.
rancar2 12y ago
From reading the blog post and the IRS letter of rejection, I didn’t really find a strong case for why Yorba requires being a separate entity. Have you considered becoming fiscal sponsorship project? There are multiple 501(c)(3) organization that might consider serving as a fiscal sponsor for the project like the Software Freedom Conservancy. Another perk to this relationship is that the fiscal sponsor will handle the taxes and compliance. To give some more background, my nonprofit went through a similar 4 yearlong back and forth process, but in the end, we did successful receive status last year. Prior to approval, I set up our organization as a fiscally sponsored organization by established another 501(c)(3). The status that we achieved is probably one of the highest on the IRS watchlist (donor advised fund) so I’ve had to fortune of getting to know the IRS and the tax code for tax-exempt entities very well :-) For Yorba situation, the language used by Yorba in response to the IRS may be fine when talking to developers, but when talking to the IRS, using IRS’ language helps tremendously along with reinforcing a specific charitable purpose and avoiding any red flags (which Yorba’s response triggered in multiple regards); this is where a lawyer specializing in nonprofit law can really help as @philipn suggested. If you can’t afford a lawyer, you may be able to obtain pro bono work, and even then, it’s still good to read the relevant legal treatise to ensure you are well informed.
jrockway 12y ago
Little known fact: the GNU project got its 501(c)(3) status by starting The Church of Emacs. The software is just something they do for fun. (I might have made that up.)
guard-of-terra 12y ago
The quotes from IRS shot that this is not a random rejection, rather a whole policy with thought-out basis. Somebody took time to ridicule open source in legalese. Two options from the paranoid: Somebody influences IRS to stifle open source? Who may that be? IRS thinks they can make enough wool by shaving pigs? That's desperate. They should better figure out how to dismember Apple than do what they do. It's a disgrace.
- XorNot 12y ago
  non-crazy theory: much like US immigration, this is someone who's being allowed to have a bee up his bonnet about 'those silicon valley types' and is taking it out institutionally. Appealing this would be a charitable act in and of itself, since it would create precedent that other OSS groups could use too.
- dragonwriter 12y ago
  > The quotes from IRS shot that this is not a random rejection, rather a whole policy with thought-out basis. Somebody took time to ridicule open source in legalese. Its not "ridiculing". Its applying the law and existing precedent to the specific facts presented by Yorba. It may be wrong, but reading the whole letter it seems like its more that Yorba did a poor job at explaining how it met the 501(c)(3) requirements, including when responding to specific inquiries by the IRS.[1] (It'd be interesting to get the application and other documents and compare them to those of, e.g., the Apache Software Foundation, Mozilla Foundation, and other open-source entities that have gotten 501(c)(3) status and see if its really that the IRS decision here is out of line with other ones in similar areas or if its just Yorba's documentation and explanations that are the issue.) [1] http://yorba.org/docs/IRS-determination-letter-final.pdf http://yorba.org/docs/IRS-determination-letter-final.pdf
juliendorra 12y ago
Interestingly, from what I read here it seems a lot simpler to set up a tax exempt non-profit in France (Europe?). Basically you just register the statute of the non-profit (it's inner working), and you can then act as a registered non-profit exempt from many taxes (non-profit meaning you can't share the revenue between the members as if they were shareholders). The tax administration can control at any point, of course, and ask for taxes if you start doing for-profit or clearly commercial activities that are not covered by the rules. Then if you want to exempt donations, as in this case, you have to be of general interest (for the common good). You don't need to apply, You can just self-check against a list of criterias, and emit a fiscal receipt for you donators (but you might have to prove it later). Or you can ask the tax administration to confirm and declare that you are of general interest. And then there is another step for more exemptions, for your donators "of public utility" ("d'intérêt public"). This is way harder to get and is granted and published by the government. This is for bigger fondations working on great, wide issues.
gpcz 12y ago
The IRS BOLO lists [1] are scanned bitmap PDFs, which make them extremely hard to search. Does anyone know if they also BOLOed Free Software, or was it just Open Source? The reason I ask is that the term "open source" was designed to be more palatable to businesses. In Revolution OS, Eric S. Raymond said in regard to saying open source over free software: "If you walk in to an executive's office and say 'Free Software', OK, If you're lucky, the response you'll get is something like, 'hmm, hmm, Free Software, must be cheap, shoddy, worthless.' If you're not lucky, it has associations with the Free Software Foundation's wholesale attack on intellectual property rights, which regardless of what you think about the ethics of that, it's lousy marketing, it's not something that businesses want to hear" [2]. I don't know how savvy the IRS was about the nuances between open source and free software (probably not very), but if they were, they might be making a somewhat-reasonable distinction that "open source" was designed specifically to please the business sector rather than free software's focus on ethics and freedom. [1]: http://democrats.waysandmeans.house.gov/press-release/new-irs-information-shows-“progressives”-included-bolo-screening-list http://democrats.waysandmeans.house.gov/press-release/new-ir... [2]: http://www.cswap.com/2001/Revolution_OS/cap/en/25fps/a/00_54 http://www.cswap.com/2001/Revolution_OS/cap/en/25fps/a/00_54
- mark_l_watson 12y ago
  +1 good point. If I were the IRS, organizations producing GPL (or AGPL) licensed software would look more like an educational 501(c)(3) entity than those producing software under Apache or MIT type licenses. I am not saying I like one license type more than the other (I use both GPL and Apache, depending on the project).
- jordigh 12y ago
  > Free Software, or was it just Open Source? These two are synonyms: http://jordi.inversethought.com/blog/5-things-we-have-forgotten-about-open-source/ http://jordi.inversethought.com/blog/5-things-we-have-forgot...
  - dllthomas 12y ago
    That's possibly relevant to what should appear on the BOLO list. It doesn't seem relevant to what does appear on the BOLO list, or whether one could avoid flagging by using the other term.
zb 12y ago
It is my understanding that 501(c)(3) status has always been difficult to get for open source software foundations. Organisations such as the Linux Foundation operate instead under 501(c)(6) (business trade association). However, the OpenStack Foundation recently applied for 501(c)(6) status and received an initial denial[1], much to the surprise of all concerned since this was historically pretty easy to get. So there may be something to the author's thesis. [1] http://blogs.gnome.org/markmc/2014/05/17/may-11-openstack-foundation-board-meeting/ http://blogs.gnome.org/markmc/2014/05/17/may-11-openstack-fo...
JackC 12y ago
So, I'm a lawyer, but not at all a tax lawyer. I was talking to a tax lawyer the other day, though. I told her that I heard a lot of public-interest journalism projects were getting rejected for tax-exempt status, and it seemed like a problem in the tax laws -- we haven't adjusted to a world where a lot of journalism is done by non-profits. A lot like this story, but with journalism instead of software development. She said she had looked at some of those applications, and she would have rejected them too. She thought the problem was journalism startups haven't figured out that they need to talk to a tax lawyer before filing important documents with the IRS. (And, yes, she's donating time to help with that, incidentally.) Like I said, I'm not a tax lawyer. But I would wait to get a perspective from someone who knows this field before I concluded that the IRS is really opposed to free software in general. And I would do this kind of thing through a lawyer who specializes in it. Remember that you're helping out more than just you -- if you do it right you're paving the way for people like you. If you do it wrong, you're inviting bad decisions with broad statements like the ones quoting in this article.
restalis 12y ago
"We have no plans to appeal their decision." It's a shame. That kind of stupidity, shown by IRS, deserves to be penalized.
wes-exp 12y ago
It's a wake up call: real charity is stuff like stopping malaria in destitute villages. Releasing software without charging a fee? Not so much.
jorgeleo 12y ago
Interesting case. What I understand is that the product not only lack of proof that disadvantaged group benefits from it, but mainly it can be used by institutions that are for profit. GPL v3 IANAL, but can you modify the license so if the user of your code is a for profit institution, then they are licensed under GPL v3. so the institution will have to make their code available for the community to benefit. Something that for profit institutions are highly allergic to (severe CIO rashes, and COO anaphylactic shocks) And then can you turn back to the IRS and say that because the licensing schema, if a for profit makes use of the code, it forced to be used for the benefit of the community and not just for their profit? Or maybe there is the need of a GPL v4 where you cannot make profit using the code released?
- davexunit 12y ago
  >Or maybe there is the need of a GPL v4 where you cannot make profit using the code released? That would violate freedoms 2 and 3 of the Free Software definition. https://www.gnu.org/philosophy/free-sw.html https://www.gnu.org/philosophy/free-sw.html
phazmatis 12y ago
Crackpot conspiracy theory: Microsoft is whispering in the IRS's ear. The joke's on them: Once a piece of open source software has a foundation around it, it's pretty much just a bunch of people re-coloring widgets.

gcb0 12y ago

reading that i almost wish they deny status to everyone writing coffee under bsd and mit and only allow gnu gpl :)

It sounds like the gist is that they were rejected because the code they create might be used by entities that are not nonprofits/charitable. One one hand, this seems crazy if the software created is given -- for a bad metaphor: imagine a charity being unable to feed people because those people may use the energy they get from that food to do non-charitable works. Separately, and to play devil's advocate, I can kind of see the logic here: it creates a loophole through which re-usable work that is funded under tax exempt status can then be used by anyone, so you could imagine some org donating some money to get some particular work done, then getting it and using it without having to have paid tax on the equivalent work that would have been done if they paid for it. Going back to the food metaphor, it might be like a charity offering free food to anyone, rather than just to those who have a particular need. I think that such a charity might run into a similar rejection, but I don't know. Like I said, I think it sounds crazy, but hopefully this draws more interested parties into the discussion.

spenvo 12y ago
The NFL is considered a non-profit organization by the IRS, yet all of the teams which associate with its branding reap enormous profits. How should all organizations which happen to open-source code automatically be "for profit" just because some other companies might use such code for commercial purposes? The two examples are very similar but the NFL is non-profit. If the precedent is set, the damage to the FLOSS movement would be real and lasting.
- codezero 12y ago
  To be clear, there are significant differences with the legal classifications of various non-profits. 501(c)(3) is much different from 501(c)(6) (the NFL is (6)) I am not a lawyer so I don't know what the differences are, but it's possible/likely that if someone was going for a different kind of non-profit the rules would change dramatically, so they can't quite be compared apples to apples. see: https://en.wikipedia.org/wiki/501(c) https://en.wikipedia.org/wiki/501(c)
  - thefreeman 12y ago
    So I was curious about this and looked up some more information on it (the NFL tax exemption). Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual. http://sportsfans.org/2012/03/why-is-the-national-football-league-given-tax-exempt-status/ http://sportsfans.org/2012/03/why-is-the-national-football-l... One more needle to add to the haystack of bull shit from my government I put up with.
    - deleted 12y ago
      [deleted]
- dragonwriter 12y ago
  > The NFL is considered a non-profit organization by the IRS, yet all of the teams which associate with its branding reap enormous profits. The NFL is a 501(c)(6) trade association, so that's expected. Its not a 501(c)(3) charity. The rules are completely different.
- snowwrestler 12y ago
  The NFL is not a great example as they have a specific exemption that Congress wrote into the law just for them.
  - 12y ago
smsm42 12y ago
>>> so you could imagine some org donating some money to get some particular work done, then getting it and using it without having to have paid tax on the equivalent work that would have been done if they paid for it If they donate the result to be used by everyone, not only this org - what's wrong with that? If a company builds a public park and this company's employees, along with others, can visit it - is it bad? If a company builds a hospital which accepts, among others, this company's employees - is it evil?
- codezero 12y ago
  I am not justifying anything but I think that the target audience of the tax-free work is important to the IRS when classifying the organization. Like others have said, they may get exemption with some tweaks, but simply "not being bad" doesn't make it good, if you think of it from the point of view of a loophole that other companies can take advantage of, it's important to the IRS to avoid loopholes like that, it has nothing to do with good or evil, just with money and avoiding taxes :)
  - smsm42 12y ago
    Why it is a loophole? I thought giving stuff to the public is the whole point of the nonprofit status, why you're calling it a "loophole"? Yes, of course businesses benefit from it too - they are part of the public, businesses are run by people and serve people, so whatever makes people's lives better helps businesses too. If the government says that it would not tax activities which benefit the public, it is extremely weird to say "unless of course it benefits all the public and not just narrow subset of it". I'd say it makes more sense to encourage activities which benefit everybody, not suppress them. As is it sounds like IRS would be happy to welcome an organization that gives software for free only to people living in New York and unemployed, rather then giving it to everybody. I don't see how it makes any sense - the benefit for the society is clearly larger in the latter case and that's the whole point why nonprofit status exists in the first place!
    - codezero 12y ago
      It isn't inherently a loophole, I never said that, I said from the point of view of the IRS it could open up a loophole, possibly. Giving to the public isn't the point of nonprofit status, there are lots of different kinds of nonprofits, and the one under discussion here is a very specific kind, and in order to qualify for it, the IRS requires a lot of specific things. From what I understand, the issue the IRS has is the fact that the recipient of the charity was too broad, and to qualify for 501(c)(3) status, the recipient of the charity should be more targeted. Think of it this way, I could give away free food all day, but if I'm doing it at the top of a ski resort, it probably doesn't help the kind of people who need free food and my case for being considered a charity may be diminished. There is nothing to say that companies doing open source can't qualify, many have, and they obviously did so with better lawyers and maybe a more concrete/directed plan as to who would receive the charity they are offering. The IRS isn't concerned with the benefit to society, that's not what they are regulating, they are regulating the flow of money and exemptions to taxation. Software that is tax free and used by entities which may exploit that are what the IRS is probably considering.

philipn 12y ago

I'm the ED of a 501(c)3 non-profit (http://localwiki.org http://localwiki.org), and when we applied for our (c)3 status we got some flack along these lines, as well. Here's my advice to the Yorba Foundation folks: If you haven't received your final rejection, you can appeal. Don't try and do this yourself. The post says they spoke with folks at the Software Freedom Center, which is great, but I highly recommend finding a specialized attorney who's seen lots of applications and knows the right angle. Hire an attorney who specializes in obtaining 501(c)3 status. We made this mistake early on, thinking we could work through the NOLO book and apply ourselves. It cost us. For around $1k you can find a good non-profit attorney to help. We got flack for the open-source thing, too. Our original exemption application was basically "Hey, we're a charity! We give things away for free and release open source code, which can be used by everyone!" Depending on the IRS agent assigned to you, you might get flack for this as well. Generally speaking, they may not like that a for-profit business can use your organization's by-product to make lots of money for themselves. We spent some time explaining how OSS worked to the agent, and was able to convince him that because (most) of our OSS is copyleft, that it would be a continually-free-and-open good, not a private benefit. Nevertheless, just releasing OSS is NOT an exempt purpose. If you read the IRS regulations, they are very specific as to what a core exempt purpose is. You'll need to pick one that fits best. Generally speaking, it's 1) Church stuff 2) Scientific advancement and research 3) Furthering of the arts 4) Education 5) "Charity," meaning helping people who are disadvantaged in some way 6) Some others that I'm not remembering. Most OSS 501(c)3 don't get exemption by just releasing open source software-- they get exemption by being an educational institution. So you may want to go that route -- the organization's core exemption is the creation of educational materials that help education members of a particular community in XYZ ways. This is what we ended up doing -- we're classified as an educationally-exempt organization. If you look up the 501(c)3 apps of some other OSS non-profits you'll see similarly -- e.g. Plone Foundation is set up as an educational organization. Edit: If you'd like to take a look at some of our back-and-forth with the IRS agent at the time, check out the page here: http://localwiki.net/org/Historic_501%28c%293_application_process http://localwiki.net/org/Historic_501%28c%293_application_pr... You'll see his response was similar to yours, but we decided to pursue educational exemption and were granted on that basis in the end. Also, you can call up the IRS Agent assigned to you and talk to them about the application, which can be extremely helpful.

deleted 12y ago

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jcalvinowens 12y ago

Quotes From the IRS letter to Yorba: > 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. By this logic, all non-profit educational entities should be disqualified because things people learn through their programs might later be used by those people to make a profit. > public works must serve a community. Open source licensing ensures the Tools are accessible to the world. We have not found any authority for the proposition that the world is a community within the meaning of § 501(c)(3). I understand that there are probably real legal reasons for the IRS saying this... but that's bordering on inanity worthy of the Onion.

titanix 12y ago

Private corporation seizing other's domains, non-profit organization unable to exempted from taxes, US gov wanting to access US-based company data on foreign data center, PRISM, etc. it seems the US is building a strong negative law environment against its own tech firms. If only Europe were to take take this opportunity to become more attractive... but I haven't any faith our leader will do it.

aikah 12y ago
(I didnt downvote you,what's up with people downvoting for the sake of it?) There are weaker software patent laws in Europe,they exist but are very limited. On the other hand Taxes are generaly higher,employement cost is higher and VC funding is close to non existant.But you might get financed by public money(with strings attached and a lot of paperwork ) So it's a trade-off. From a pure "capitalistic" perspective the situation is better for startups in USA in the west coast.And since Europe is not really a country,it's harder to reach all European markets(different languages,cultures,fiscal policies,laws...).In USA everybody talks English.

rancar2 12y ago

From reading the blog post and the IRS letter of rejection, I didn’t really find a strong case for why Yorba requires being a separate entity. Have you considered becoming fiscal sponsorship project? There are multiple 501(c)(3) organization that might consider serving as a fiscal sponsor for the project like the Software Freedom Conservancy. Another perk to this relationship is that the fiscal sponsor will handle the taxes and compliance. To give some more background, my nonprofit went through a similar 4 yearlong back and forth process, but in the end, we did successful receive status last year. Prior to approval, I set up our organization as a fiscally sponsored organization by established another 501(c)(3). The status that we achieved is probably one of the highest on the IRS watchlist (donor advised fund) so I’ve had to fortune of getting to know the IRS and the tax code for tax-exempt entities very well :-) For Yorba situation, the language used by Yorba in response to the IRS may be fine when talking to developers, but when talking to the IRS, using IRS’ language helps tremendously along with reinforcing a specific charitable purpose and avoiding any red flags (which Yorba’s response triggered in multiple regards); this is where a lawyer specializing in nonprofit law can really help as @philipn suggested. If you can’t afford a lawyer, you may be able to obtain pro bono work, and even then, it’s still good to read the relevant legal treatise to ensure you are well informed.

jrockway 12y ago

Little known fact: the GNU project got its 501(c)(3) status by starting The Church of Emacs. The software is just something they do for fun. (I might have made that up.)

guard-of-terra 12y ago

The quotes from IRS shot that this is not a random rejection, rather a whole policy with thought-out basis. Somebody took time to ridicule open source in legalese. Two options from the paranoid: Somebody influences IRS to stifle open source? Who may that be? IRS thinks they can make enough wool by shaving pigs? That's desperate. They should better figure out how to dismember Apple than do what they do. It's a disgrace.

XorNot 12y ago
non-crazy theory: much like US immigration, this is someone who's being allowed to have a bee up his bonnet about 'those silicon valley types' and is taking it out institutionally. Appealing this would be a charitable act in and of itself, since it would create precedent that other OSS groups could use too.
dragonwriter 12y ago
> The quotes from IRS shot that this is not a random rejection, rather a whole policy with thought-out basis. Somebody took time to ridicule open source in legalese. Its not "ridiculing". Its applying the law and existing precedent to the specific facts presented by Yorba. It may be wrong, but reading the whole letter it seems like its more that Yorba did a poor job at explaining how it met the 501(c)(3) requirements, including when responding to specific inquiries by the IRS.[1] (It'd be interesting to get the application and other documents and compare them to those of, e.g., the Apache Software Foundation, Mozilla Foundation, and other open-source entities that have gotten 501(c)(3) status and see if its really that the IRS decision here is out of line with other ones in similar areas or if its just Yorba's documentation and explanations that are the issue.) [1] http://yorba.org/docs/IRS-determination-letter-final.pdf http://yorba.org/docs/IRS-determination-letter-final.pdf

juliendorra 12y ago

Interestingly, from what I read here it seems a lot simpler to set up a tax exempt non-profit in France (Europe?). Basically you just register the statute of the non-profit (it's inner working), and you can then act as a registered non-profit exempt from many taxes (non-profit meaning you can't share the revenue between the members as if they were shareholders). The tax administration can control at any point, of course, and ask for taxes if you start doing for-profit or clearly commercial activities that are not covered by the rules. Then if you want to exempt donations, as in this case, you have to be of general interest (for the common good). You don't need to apply, You can just self-check against a list of criterias, and emit a fiscal receipt for you donators (but you might have to prove it later). Or you can ask the tax administration to confirm and declare that you are of general interest. And then there is another step for more exemptions, for your donators "of public utility" ("d'intérêt public"). This is way harder to get and is granted and published by the government. This is for bigger fondations working on great, wide issues.

gpcz 12y ago

The IRS BOLO lists [1] are scanned bitmap PDFs, which make them extremely hard to search. Does anyone know if they also BOLOed Free Software, or was it just Open Source? The reason I ask is that the term "open source" was designed to be more palatable to businesses. In Revolution OS, Eric S. Raymond said in regard to saying open source over free software: "If you walk in to an executive's office and say 'Free Software', OK, If you're lucky, the response you'll get is something like, 'hmm, hmm, Free Software, must be cheap, shoddy, worthless.' If you're not lucky, it has associations with the Free Software Foundation's wholesale attack on intellectual property rights, which regardless of what you think about the ethics of that, it's lousy marketing, it's not something that businesses want to hear" [2]. I don't know how savvy the IRS was about the nuances between open source and free software (probably not very), but if they were, they might be making a somewhat-reasonable distinction that "open source" was designed specifically to please the business sector rather than free software's focus on ethics and freedom. [1]: http://democrats.waysandmeans.house.gov/press-release/new-irs-information-shows-“progressives”-included-bolo-screening-list http://democrats.waysandmeans.house.gov/press-release/new-ir... [2]: http://www.cswap.com/2001/Revolution_OS/cap/en/25fps/a/00_54 http://www.cswap.com/2001/Revolution_OS/cap/en/25fps/a/00_54

mark_l_watson 12y ago
+1 good point. If I were the IRS, organizations producing GPL (or AGPL) licensed software would look more like an educational 501(c)(3) entity than those producing software under Apache or MIT type licenses. I am not saying I like one license type more than the other (I use both GPL and Apache, depending on the project).
jordigh 12y ago
> Free Software, or was it just Open Source? These two are synonyms: http://jordi.inversethought.com/blog/5-things-we-have-forgotten-about-open-source/ http://jordi.inversethought.com/blog/5-things-we-have-forgot...
- dllthomas 12y ago
  That's possibly relevant to what should appear on the BOLO list. It doesn't seem relevant to what does appear on the BOLO list, or whether one could avoid flagging by using the other term.

zb 12y ago

It is my understanding that 501(c)(3) status has always been difficult to get for open source software foundations. Organisations such as the Linux Foundation operate instead under 501(c)(6) (business trade association). However, the OpenStack Foundation recently applied for 501(c)(6) status and received an initial denial[1], much to the surprise of all concerned since this was historically pretty easy to get. So there may be something to the author's thesis. [1] http://blogs.gnome.org/markmc/2014/05/17/may-11-openstack-foundation-board-meeting/ http://blogs.gnome.org/markmc/2014/05/17/may-11-openstack-fo...

JackC 12y ago

So, I'm a lawyer, but not at all a tax lawyer. I was talking to a tax lawyer the other day, though. I told her that I heard a lot of public-interest journalism projects were getting rejected for tax-exempt status, and it seemed like a problem in the tax laws -- we haven't adjusted to a world where a lot of journalism is done by non-profits. A lot like this story, but with journalism instead of software development. She said she had looked at some of those applications, and she would have rejected them too. She thought the problem was journalism startups haven't figured out that they need to talk to a tax lawyer before filing important documents with the IRS. (And, yes, she's donating time to help with that, incidentally.) Like I said, I'm not a tax lawyer. But I would wait to get a perspective from someone who knows this field before I concluded that the IRS is really opposed to free software in general. And I would do this kind of thing through a lawyer who specializes in it. Remember that you're helping out more than just you -- if you do it right you're paving the way for people like you. If you do it wrong, you're inviting bad decisions with broad statements like the ones quoting in this article.

restalis 12y ago

"We have no plans to appeal their decision." It's a shame. That kind of stupidity, shown by IRS, deserves to be penalized.

wes-exp 12y ago

It's a wake up call: real charity is stuff like stopping malaria in destitute villages. Releasing software without charging a fee? Not so much.

jorgeleo 12y ago

Interesting case. What I understand is that the product not only lack of proof that disadvantaged group benefits from it, but mainly it can be used by institutions that are for profit. GPL v3 IANAL, but can you modify the license so if the user of your code is a for profit institution, then they are licensed under GPL v3. so the institution will have to make their code available for the community to benefit. Something that for profit institutions are highly allergic to (severe CIO rashes, and COO anaphylactic shocks) And then can you turn back to the IRS and say that because the licensing schema, if a for profit makes use of the code, it forced to be used for the benefit of the community and not just for their profit? Or maybe there is the need of a GPL v4 where you cannot make profit using the code released?

davexunit 12y ago
>Or maybe there is the need of a GPL v4 where you cannot make profit using the code released? That would violate freedoms 2 and 3 of the Free Software definition. https://www.gnu.org/philosophy/free-sw.html https://www.gnu.org/philosophy/free-sw.html

phazmatis 12y ago

Crackpot conspiracy theory: Microsoft is whispering in the IRS's ear. The joke's on them: Once a piece of open source software has a foundation around it, it's pretty much just a bunch of people re-coloring widgets.