8 ms·

IRS policy denies tax-exempt status to open source non-profits

118 points by EricaJoy 12y ago

edoceo 12y ago
Page blocking popup ads suck.
- shimshim 12y ago
  so use adblock or noscript?
  - epistasis 12y ago
    I think the page blocking happens on mobile, where these options are not so great on mobile.
    - ars 12y ago
      Install AdFree (need to be root) http://forum.xda-developers.com/nexus-4/themes-apps/adfree-android-version-t2350984 http://forum.xda-developers.com/nexus-4/themes-apps/adfree-a... You won't find it on the play store though.
  - HannibalLecter 12y ago
    always use noscript
blatherard 12y ago
Previous discussion: https://news.ycombinator.com/item?id=7969112 https://news.ycombinator.com/item?id=7969112
chollida1 12y ago
TL/DR just because you release OSS does not mean you get to be a charity:) From the previous discussion this link is probably the best advice someone can get: https://news.ycombinator.com/item?id=7969202 https://news.ycombinator.com/item?id=7969202 > 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. > 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.
- duaneb 12y ago
  Wouldn't this fall under "scientific advancement"? That's a dangerous term to say the least, but it's technology that benefits everyone.
  - stephencanon 12y ago
    Writing software, in and of itself, does no more to advance science than building houses does to advance structural engineering. If they are specifically writing software to be used for scientific research, or are carrying out significant research into computing and releasing papers/patents freely, then they might qualify.
    - Karunamon 12y ago
      So let's look at some of the existing ones like Wikimedia or Apache. What are they doing to claim that particular exemption?
      - stephencanon 12y ago
        I expect that they aren't claiming a scientific purpose. More likely they claim to be educational, or that they provide a public work.
      - lacksconfidence 12y ago
        at least in the case of wikimedia, software is merely a byproduct of their goal. To quote their main page: Wikimedia is a global movement whose mission is to bring free educational content to the world.
      - DougBTX 12y ago
        Here's Wikimedia's confirmation of exemption letter. https://upload.wikimedia.org/wikipedia/foundation/9/90/501%28c%293_Letter.png https://upload.wikimedia.org/wikipedia/foundation/9/90/501%2... To go further, I'd look up exactly what "Public Charity Status 170(b)(1)(A)(vi)" is, and then compare that to how they describe themselves here: https://wikimediafoundation.org/wiki/FAQ/en https://wikimediafoundation.org/wiki/FAQ/en
dnautics 12y ago
suddenly seems like it was a bad idea to bill my nonprofit (details in profile) as an effort to make open-source pharmaceuticals.... My application has been in the queue for more than a year.
- msandford 12y ago
  Probably not too bad of an idea. What you're talking about is advancing science for sure. Yeah you might hit the "open source" trigger but it's molecules not code. Even if you get turned down you should be able to appeal quite readily and make sure that you explain that this is Science(tm) and "open source" is merely a handy analogy by which people understand that you're making the results available very publicly, for all to use. If that's not science, I don't know what is.
- maxerickson 12y ago
  How much do you expect the tax advantages to matter? (I'm wondering if the compliance headaches will be a bad trade off for small enterprises vs any savings at IRS time)
- pdabbadabba 12y ago
  Hard to say. Hire a lawyer if it's important. This stuff is not easy.
slyrus 12y ago
Isn't the obvious solution to claim that they're a church and that writing OSS is a sacred rite?
anigbrowl 12y ago
We have no plans to appeal their decision. It looks to be an arduous legal battle we cannot afford. This is rather sad, and since you were given a 30-day window to contest the decision that was issued on May 22 and it's now July, I have to assume that you decided not to bother and let the window close rather than asking for an extension or suchlike. But I'll address the substantial question anyway. Maybe you (ie Yorba) shouldn't look at it in confrontational terms. My understanding is that the IRS has standards which it is required to meet by law before granting 501(c)(3) status, not least because of questionable compliance by other organizations in the past, eg the kerfuffle over Acorn, an organization whose lax internal standards led to an unusual Congressional defunding. (Of course that was a heavily politicized case, but that's life inside the sausage factory). If you look at it from the IRS's point of view, much of the letter explains what sort of materials they need to satisfy the showing of a charitable purpose, eg on page 2 they point out that you have no real idea if the Tools are actually used by the poor and underprivileged. Obviously you don't want to make everyone jump through hoops to download them, or track everyone who does, but you could solicit testimonials from under-privileged people who derive benefit from them, in order to make a showing of having provided aid to the underprivileged. Merely stating this as your goal doesn't qualify, since such statements of good intention are easily employed by people who wish to maintain a charitable front for activities that would otherwise be taxable. In the absence of any showing to the contrary the IRS has to weigh the possibility of an illegitimate purpose. If not, they're arguably just rubber-stamping the application. We might think the charitable nature of an open-source project is self-evident, but the whole point of regulatory oversight is that you can't always take people's word at face value, because a substantial proportion of people are in fact dishonest and inclined to abuse loopholes in things like tax liability. So you need to provide them with some objective evidence of your charitable endeavor by showing examples of who is helped and how. Doing so would probably obviate the requirement to screen out commercial or political uses. Likewise, the letter points out that the although you offer educational materials in the form of documentation (presumably of both the code and applications), you didn't include any of this with your submission, so again you can't really blame them for not giving weight to it. Yes, they could go off and look it up, but the fact is that in our adversarial legal system its up to the petitioner (for tax exempt-status) to proactively supply evidence for their claim and make an argument for how it supports their charitable activity, not that of the administrator to go and look for it. Some of the documentation of your site is quite good (eg the Shotwell architectural documentation for programmers), some is pretty perfunctory (eg the Shotweel user documentation, or the almost-non-existent documentation for the deprectated Fillmore project). By 'perfunctory' I mean that the Shotwell documentation (for example) says 'function x is here, configurator Y is there, common task Z can be achieved like so.' This is OK for hackers - let's face it, many of use care as little to read documentation as programmers care to write it - but it's not instructional in the sense of helping someone who was unfamiliar with computers to develop a skill they would otherwise lack. I could go on, but I don't want to go through the letter right now with a fine-tooth comb. The thing is, when I read it I see them telling you what they need to see and how it should be presented, as well as where the errors in your original submission were. Even if you don't appeal, this is useful information for other open-source nonprofits to use - not just in meeting IRS compliance requirements, but in ensuring that their offerings provide concrete benefits beyond free-as-in-beer software. I don't think the reference to notions of public works extending back 4 centuries is evidence of an antipathy to software or a requirement that the people of the 17th century have foresight of such things, but addresses the underlying notion of what constitutes charitable assistance: it is more than just putting a box on the sidewalk labeled 'free stuff'. One thing that jumps out at me from page 9 is the tricky issue of copyright assignment in free software licenses. I've always felt that GNU license tried to have its legal cake and eat it by saying it was open to all but preventing its use in closed-source commercial products (GPL 5c - http://www.gnu.org/copyleft/gpl.html http://www.gnu.org/copyleft/gpl.html). It appears the IRS is saying that if you really want to 'give' software/source to the public, you have to actually put it in the public domain rather than promulgating ideological restrictions; if someone then exploits it to make and sell 'Closed Source Nastyware, Ripoff Edition' that's just too bad.

118 points by EricaJoy 12y ago

edoceo 12y ago

Page blocking popup ads suck.

shimshim 12y ago
so use adblock or noscript?
- epistasis 12y ago
  I think the page blocking happens on mobile, where these options are not so great on mobile.
  - ars 12y ago
    Install AdFree (need to be root) http://forum.xda-developers.com/nexus-4/themes-apps/adfree-android-version-t2350984 http://forum.xda-developers.com/nexus-4/themes-apps/adfree-a... You won't find it on the play store though.
- HannibalLecter 12y ago
  always use noscript

blatherard 12y ago

Previous discussion: https://news.ycombinator.com/item?id=7969112 https://news.ycombinator.com/item?id=7969112

chollida1 12y ago

TL/DR just because you release OSS does not mean you get to be a charity:) From the previous discussion this link is probably the best advice someone can get: https://news.ycombinator.com/item?id=7969202 https://news.ycombinator.com/item?id=7969202 > 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. > 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.

duaneb 12y ago
Wouldn't this fall under "scientific advancement"? That's a dangerous term to say the least, but it's technology that benefits everyone.
- stephencanon 12y ago
  Writing software, in and of itself, does no more to advance science than building houses does to advance structural engineering. If they are specifically writing software to be used for scientific research, or are carrying out significant research into computing and releasing papers/patents freely, then they might qualify.
  - Karunamon 12y ago
    So let's look at some of the existing ones like Wikimedia or Apache. What are they doing to claim that particular exemption?
    - stephencanon 12y ago
      I expect that they aren't claiming a scientific purpose. More likely they claim to be educational, or that they provide a public work.
    - lacksconfidence 12y ago
      at least in the case of wikimedia, software is merely a byproduct of their goal. To quote their main page: Wikimedia is a global movement whose mission is to bring free educational content to the world.
    - DougBTX 12y ago
      Here's Wikimedia's confirmation of exemption letter. https://upload.wikimedia.org/wikipedia/foundation/9/90/501%28c%293_Letter.png https://upload.wikimedia.org/wikipedia/foundation/9/90/501%2... To go further, I'd look up exactly what "Public Charity Status 170(b)(1)(A)(vi)" is, and then compare that to how they describe themselves here: https://wikimediafoundation.org/wiki/FAQ/en https://wikimediafoundation.org/wiki/FAQ/en

dnautics 12y ago

suddenly seems like it was a bad idea to bill my nonprofit (details in profile) as an effort to make open-source pharmaceuticals.... My application has been in the queue for more than a year.

msandford 12y ago
Probably not too bad of an idea. What you're talking about is advancing science for sure. Yeah you might hit the "open source" trigger but it's molecules not code. Even if you get turned down you should be able to appeal quite readily and make sure that you explain that this is Science(tm) and "open source" is merely a handy analogy by which people understand that you're making the results available very publicly, for all to use. If that's not science, I don't know what is.
maxerickson 12y ago
How much do you expect the tax advantages to matter? (I'm wondering if the compliance headaches will be a bad trade off for small enterprises vs any savings at IRS time)
pdabbadabba 12y ago
Hard to say. Hire a lawyer if it's important. This stuff is not easy.

slyrus 12y ago

Isn't the obvious solution to claim that they're a church and that writing OSS is a sacred rite?

anigbrowl 12y ago

We have no plans to appeal their decision. It looks to be an arduous legal battle we cannot afford. This is rather sad, and since you were given a 30-day window to contest the decision that was issued on May 22 and it's now July, I have to assume that you decided not to bother and let the window close rather than asking for an extension or suchlike. But I'll address the substantial question anyway. Maybe you (ie Yorba) shouldn't look at it in confrontational terms. My understanding is that the IRS has standards which it is required to meet by law before granting 501(c)(3) status, not least because of questionable compliance by other organizations in the past, eg the kerfuffle over Acorn, an organization whose lax internal standards led to an unusual Congressional defunding. (Of course that was a heavily politicized case, but that's life inside the sausage factory). If you look at it from the IRS's point of view, much of the letter explains what sort of materials they need to satisfy the showing of a charitable purpose, eg on page 2 they point out that you have no real idea if the Tools are actually used by the poor and underprivileged. Obviously you don't want to make everyone jump through hoops to download them, or track everyone who does, but you could solicit testimonials from under-privileged people who derive benefit from them, in order to make a showing of having provided aid to the underprivileged. Merely stating this as your goal doesn't qualify, since such statements of good intention are easily employed by people who wish to maintain a charitable front for activities that would otherwise be taxable. In the absence of any showing to the contrary the IRS has to weigh the possibility of an illegitimate purpose. If not, they're arguably just rubber-stamping the application. We might think the charitable nature of an open-source project is self-evident, but the whole point of regulatory oversight is that you can't always take people's word at face value, because a substantial proportion of people are in fact dishonest and inclined to abuse loopholes in things like tax liability. So you need to provide them with some objective evidence of your charitable endeavor by showing examples of who is helped and how. Doing so would probably obviate the requirement to screen out commercial or political uses. Likewise, the letter points out that the although you offer educational materials in the form of documentation (presumably of both the code and applications), you didn't include any of this with your submission, so again you can't really blame them for not giving weight to it. Yes, they could go off and look it up, but the fact is that in our adversarial legal system its up to the petitioner (for tax exempt-status) to proactively supply evidence for their claim and make an argument for how it supports their charitable activity, not that of the administrator to go and look for it. Some of the documentation of your site is quite good (eg the Shotwell architectural documentation for programmers), some is pretty perfunctory (eg the Shotweel user documentation, or the almost-non-existent documentation for the deprectated Fillmore project). By 'perfunctory' I mean that the Shotwell documentation (for example) says 'function x is here, configurator Y is there, common task Z can be achieved like so.' This is OK for hackers - let's face it, many of use care as little to read documentation as programmers care to write it - but it's not instructional in the sense of helping someone who was unfamiliar with computers to develop a skill they would otherwise lack. I could go on, but I don't want to go through the letter right now with a fine-tooth comb. The thing is, when I read it I see them telling you what they need to see and how it should be presented, as well as where the errors in your original submission were. Even if you don't appeal, this is useful information for other open-source nonprofits to use - not just in meeting IRS compliance requirements, but in ensuring that their offerings provide concrete benefits beyond free-as-in-beer software. I don't think the reference to notions of public works extending back 4 centuries is evidence of an antipathy to software or a requirement that the people of the 17th century have foresight of such things, but addresses the underlying notion of what constitutes charitable assistance: it is more than just putting a box on the sidewalk labeled 'free stuff'. One thing that jumps out at me from page 9 is the tricky issue of copyright assignment in free software licenses. I've always felt that GNU license tried to have its legal cake and eat it by saying it was open to all but preventing its use in closed-source commercial products (GPL 5c - http://www.gnu.org/copyleft/gpl.html http://www.gnu.org/copyleft/gpl.html). It appears the IRS is saying that if you really want to 'give' software/source to the public, you have to actually put it in the public domain rather than promulgating ideological restrictions; if someone then exploits it to make and sell 'Closed Source Nastyware, Ripoff Edition' that's just too bad.