
IRS policy denies tax-exempt status to open source non-profits - EricaJoy
http://arstechnica.com/tech-policy/2014/07/irs-policy-that-targeted-tea-party-groups-also-aimed-at-open-source-projects/
======
chollida1
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.

~~~
pdabbadabba
This is exactly on-point, and bears repeating: simply not seeking to make a
profit does not make an organization eligible for 501(c)(3) status. The
organization must have an exempt purpose, one that is "charitable, religious,
educational, scientific, literary, testing for public safety, fostering
national or international amateur sports competition, and preventing cruelty
to children or animals."

Charitable, in turn, has its own specific meaning: it includes "relief of the
poor, the distressed, or the underprivileged; advancement of religion;
advancement of education or science; erecting or maintaining public buildings,
monuments, or works; lessening the burdens of government; lessening
neighborhood tensions; eliminating prejudice and discrimination; defending
human and civil rights secured by law; and combating community deterioration
and juvenile delinquency."

See [http://www.irs.gov/Charities-&-Non-Profits/Charitable-
Organi...](http://www.irs.gov/Charities-&-Non-Profits/Charitable-
Organizations/Exempt-Purposes-Internal-Revenue-Code-Section-501\(c\)\(3\))

In light of these requirements, and poking around the Yorba website, I'm not
shocked that Yorba was denied. Though it may claim to be a "charitable,
scientific, and educational" organization, it certainly looks to me like its
purpose is to make free software. It does not exist to educate people, it does
not exist to further a field of scientific study, and it does not appear
intended to do any of the things covered by "charitable purposes." It may do
some of these things incidentally (education, in particular) but that won't
cut it. Ars's argument that open-source software has educational value misses
the point: education has to be the purpose of the organization, not simply a
benefit that flows from the organization's work.

And the IRS's concern is not just that corporations might indirectly benefit
from the work of non-profits (though that seems to . The IRS is also concerned
about corporations intentionally spinning off projects for the purpose of
sheltering some of their activities from taxation.

~~~
cscurmudgeon
> maintaining public buildings, monuments, or works

I'd say Yorba falls under that if you take "works" to include digital
artifacts.

~~~
pdabbadabba
Sure, if "maintaining a work" counted, the standard would be pretty easy to
meet!

But it's not just "works" but "public works." As in, "a broad category of
infrastructure projects, financed and constructed by the government, for
recreational, employment, and health and safety uses in the greater
community."
[http://en.wikipedia.org/wiki/Public_works](http://en.wikipedia.org/wiki/Public_works)
(Yes, it's Wikipedia, but this definition is about right.)

~~~
cscurmudgeon
Isn't free open source a public work? It seems to meet the criteria as almost
everyone has a computer...

~~~
npizzolato
It seems like "financed and constructed by the government" is a pretty
important clause in that definition.

~~~
cscurmudgeon
It is a clause in the Wikipedia definition of what constitutes public works.
Does the IRS use the Wikipedia definition?

[http://www.irs.gov/Charities-&-Non-Profits/Charitable-
Organi...](http://www.irs.gov/Charities-&-Non-Profits/Charitable-
Organizations/Exempt-Purposes-Internal-Revenue-Code-Section-501\(c\)\(3\))

~~~
pdabbadabba
Can't immediately find any IRS documents defining the term, but here is the
definition from Black's Law Dictionary:

> Structures (such as roads or dams) built by the government for public use
> and paid for by public funds.

There is also a maxim of statutory interpretation in law that a word it known
by its fellows. In this case, that would mean preferring an interpretation of
"public works" that yields a certain kinship between that term and "public
building" and "monuments." This would seem to militate in favor of the
Black's/Wikipedia definition. Note also that these three are followed by
"lessening the burdens of government" which might be another hint. (I.e.,
organizations that support public works are deserving of tax exempt status
because they lessen the burdens of government.)

I can also tell you anecdotally that, at least among lawyers, the term is very
well known and is definitely widely understood as having the definition given
by Black's and Wikipedia. There may be a creative argument to be made that an
open source project is a public work (could make a fun law review article!),
but I doubt it would go very far.

------
blatherard
Previous discussion:
[https://news.ycombinator.com/item?id=7969112](https://news.ycombinator.com/item?id=7969112)

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

------
dnautics
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
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.

------
anigbrowl
_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.

------
edoceo
Page blocking popup ads suck.

~~~
shimshim
so use adblock or noscript?

~~~
epistasis
I think the page blocking happens on mobile, where these options are not so
great on mobile.

~~~
ars
Install AdFree (need to be root) [http://forum.xda-
developers.com/nexus-4/themes-apps/adfree-a...](http://forum.xda-
developers.com/nexus-4/themes-apps/adfree-android-version-t2350984)

You won't find it on the play store though.

