by slashdotaccount on 7/1/14, 4:02 AM with 66 comments
by JackC on 7/1/14, 1:11 PM
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.
by codezero on 7/1/14, 4:42 AM
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.
by gpcz on 7/1/14, 12:09 PM
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-ir... [2]: http://www.cswap.com/2001/Revolution_OS/cap/en/25fps/a/00_54
by jcalvinowens on 7/1/14, 6:15 AM
> 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.
by philipn on 7/1/14, 4:49 AM
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_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.
by zb on 7/1/14, 12:40 PM
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-fo...
by rancar2 on 7/1/14, 6:38 AM
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.
by juliendorra on 7/1/14, 8:42 AM
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.
by jorgeleo on 7/1/14, 6:01 PM
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?
by wes-exp on 7/1/14, 2:55 PM
by restalis on 7/1/14, 1:25 PM
It's a shame. That kind of stupidity, shown by IRS, deserves to be penalized.
by phazmatis on 7/2/14, 2:10 AM
by guard-of-terra on 7/1/14, 7:15 AM
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.
by gcb0 on 7/1/14, 9:52 AM
by jrockway on 7/1/14, 6:43 AM
(I might have made that up.)
by titanix on 7/1/14, 6:34 AM