X.Org Foundation Loses 501(c)3 Non-Profit Status

An anonymous reader writes "The X.Org Foundation, which drives the X.Org Server projects, Mesa, and Wayland open-source programs, had its tax-exempt status revoked by the IRS. It turns out the X.Org Foundation had put in quite a lot of work to become a non-profit organization, with guidance from the Software Freedom Law Center. They got in trouble after failing to routinely file their taxes on time. There's also been a host of other X.Org accounting errors in recent years. There was also the recent news of the IRS going after open-source projects, too."

No one to blame but themselves

[barlevg]

Seriously. How hard is it to file your taxes on time? Or to hire someone to do it for you?

First

[cookYourDog]

they came for the tea party. I didn't care because I wasn't in the tea party.

X.org forfeits agreement. IRS does job. News at 11

[OzPeter]

So X.org applied for and received 501(c)3 status [wikipedia.org], and then failed to live to its end of the bargain, resulting in the IRS revoking its status.

Someone please tell me why this really newsworthy? Is it only because its a company related to software? (Of which I bet the majority of /.ers don't even use - and I said majority .. not vocal individuals)

Re:No one to blame but themselves

[Gerzel]

software folks if working with money of sufficient amounts should hire an accountant.

Re:No one to blame but themselves

[jellomizer]

Exactly, I love all the woe is me, big brother is out to get me. While you fail to play by the rules set in place.

You want Tax Exempt status, good, make sure you follow the rules to keep it.

Re:Fuck off ( score:+9000, troll)

[h4rr4r]

What part of scrutiny is not lawful?

I want the IRS to investigate 501c organizations of all stripes, frankly many of them are likely frauds.

Re:not worth it

[bobbied]

I though text-exempt status also meant you didn't have to file all that paperwork once you had it. Lot of good it does to have tax-exempt status for a non-profit that makes no money, anyway.

First off... Non-Profit does not mean they don't make money, only that any money and assets they acquire do not belong to someone or a for profit entity. Non-Profits can and do make money, sell things and services at a profit, pay employees and all the same things other businesses do, but they cannot acquire cash and assets which end up owned by an individual or other for profit entity.

Second, the filing requirements for tax returns are not that involved for a 501c3. For most non-profits it amounts to filing out a form similar to a 1040Ez. The IRS generally wants to know where your money came from so they can cross reference donors deductions with receipts, at least in the general sense. I don't believe that a non-profit has to report who is giving to it, just how much they received. I also don't think that they would be required to pay taxes, only file the report.

The real problem here is that the organization that can't be bothered to file the yearly reports is likely going to be a problem for someone wanting to give money and take the tax deduction. If the organization doesn't supply a receipt a donor will be limited to $250 and if they cannot supply the IRS with the yearly return, I'm sure they won't be bothered to send out receipts either.

Seems that this organization doesn't really care about the money side of things. This is a shame, because the accounting is NOT that hard and the risks of not having proper controls in place is pretty big.

Re:No one to blame but themselves

[njnnja]

The problem is that the rules are phenomenally complex. It's easy to say that they should have just followed the rules, but IRS rules are a serious PITA to satisfy. It is quite likely that no matter what Xorg had done, the IRS could have found some error in their compliance that would enable them to revoke 501c3 status.

So the real issue is that by making it so hard to comply with the rules, regulations, and laws, it raises the question of whether the government is using "selective enforcement" to punish people, organizations, and views that they don't like. Did this happen because of a general review of nonprofits, in which case this was a simple case of good enforcement, or are "hackers" being targeted by the government (for lots of reasons, e.g. resistance to NSA monitoring), and any one of a number of technical violations would have led to the IRS' actions? In that way it is similar to the Aaron Schwartz case, and is something that should be noted, if not actively resisted.

Re:X.org tea party front?

[Americano]

I ask this because according to the Tea Partiers, Libertarians, and Fox News, those were the people the IRS was singling out for investigating their non-profit status.

So, counselor, in your estimation - is the IRS Inspector General a Tea Party Libertarian employed by Fox News, as well?

Because the IG report [cnn.com] basically confirmed what you're trying to hand-wave away - that organizations were targeted for "special" processing which imposed unnecessary burdens on them - for no other reason than their name, or chosen policy positions (e.g., a focus on "government spending").

From the report:

WHAT TIGTA FOUND
The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management:
1) allowed inappropriate criteria to be developed and stay in place for more than 18 months,
2) resulted in substantial delays in processing certain applications, and
3) allowed unnecessary information requests to be issued.

Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months. This was due to delays in receiving assistance from the Exempt Organizations function Headquarters office. For the 296 total political campaign intervention applications TIGTA reviewed as of December 17, 2012, 108 had been approved, 28 were withdrawn by the applicant, none had been denied, and 160 were open from 206 to 1,138 calendar days (some for more than three years and crossing two election cycles). More than 20 months after the initial case was identified, processing the cases began in earnest. Many organizations received requests for additional information from the IRS that included unnecessary, burdensome questions (e.g., lists of past and future donors). The IRS later informed some organizations that they did not need to provide previously requested information. IRS officials stated that any donor information received in response to a request from its Determinations Unit was later destroyed.

The lesson? Sometimes, the government really *is* wrong when Fox News reports they did something wrong.

Oh come off it

[Sycraft-fu]

It is not hard to remember, in particular because with an organization of any reasonable size you'd want to hire an accountant to do your taxes. If you are a non-profit, you'd hire an accountant who knows how to deal with that.

Any business taxes, profit or non-profit, are a bit complex and this isn't unique to the US. So you hire an accountant. Just part of doing business. My parents used to run a small business in Canada, about 5 employees including themselves. They hired an accountant to do their taxes. It wasn't that expensive and the accountant made sure everything was in order and the Canadian government was happy.

Well same shit here. X.org should have paid someone (or some firm) a couple of grand a year to do their tax accounting.

Tax exempt isn't magic

[Sycraft-fu]

You don't get awarded tax exempt status and then are allowed to do as you please. If that were the case, every company ever would start out as a charity, get tax exempt status, and then change over.

So you have to file and show that your activities still warrant tax exempt status, that you aren't violating the rules for it. For example suppose you run a non-profit and you get a massive donation, some billionaire leaves you a billion dollars. You decide cool, you'll pay all of it to yourself as salary for that year. I mean the entity is still "non-profit" right? Your salary is a cost, so no profit was made!

Ummm... no. You'd get in all kinds of trouble for that. Doesn't matter what kind of games you tried to play. Hence, you have to file taxes to show that your operations are indeed non-profit, that the money you receive goes to pay for the operation of your organization, not to enrich yourself.

If you want an organization to enrich yourself, that's fine, but that is called a business, and you have to pay taxes on that.

Re:No one to blame but themselves

[Anonymous Coward]

Gross incompetence from X developers, what a surprise?!

Re:that crazy old IRS

[iamgnat]

So the "powers that be" infiltrated X.Org's finance/accounting groups and made them not follow the rules for non-profits?

This is no different than the spun up fiasco a few months ago about the IRS investigating non-profits that appeared to be fronts for political organizations (and contrary to the Fox spin, it was not just targeting the Tea Party). To be a non-profit there are some specific rules you have to follow to maintain the status. It is the IRS's job to investigate to make sure you are following those rules.

So the real news here is "IRS does their job and idiots get upset about it and make up conspiracy stories".

Re:No one to blame but themselves

[Americano]

Section 6033(j) of the Internal Revenue Code automatically revokes the exemption of any organization that fails to satisfy its filing requirement for three consecutive years. The automatic revocation of exemption is effective as of the due date of the third required annual filing or notice.

( Source [irs.gov] )

This isn't an "ambush." What accountant doesn't realize the importance of filing taxes on time? What accountant fails to realize this *three years in a row*? What board trusts their financial matters to an accountant who doesn't realize these things?

This is standard procedure - they failed to file properly 3 years in a row, and so they had their tax exemption revoked. The IRS isn't "springing" anything on them. The IRS isn't "ambushing" them. The IRS is following it's standard procedure - if you want special tax exempt status, there are a few requirements you have to meet. One of these is filing your tax returns in a timely and complete manner. If you fail to do this, you will automatically be de-listed, and you'll receive a polite letter indicating that that has happened. They shouldn't be chasing after people. The agreement when you're granted tax-exempt status is that you will file properly and on time. That's your notice. Failing to do so results in revocation.

The IRS is Simply Following the Law Here

[pbnagel]

Prior to 2006, certain 501(c)(3) organizations that normally had gross revenues less than $25,000 were not required to file any tax returns at all. One problem that created is that the IRS had no way of knowing whether organizations that weren't filing returns (1) had gone out of business, (2) had gross revenues less than $25,000, or (3) were supposed to file returns but were failing to do so. So, in the Pension Protection Act of 2006, Congress amended Section 6033(i) to require all Section 501(c) organizations (except churches) to file at least a very abbreviated return (containing six items of information), and it amended Section 6033(j) to provide that any organization, whatever its size, that fails to file a return for three consecutive years would automatically lose its exemption.

Section 6033(j) doesn't give the IRS any discretion in the matter. Failure to file a return for three consecutive years means that tax-exempt status is automatically revoked, whether the IRS takes any formal action or not, and there is no procedure for appeal, either within the IRS or in the courts. Because this is such a draconian penalty, in 2009 and 2010, as the third full year following the 2006 Act began to run out, the IRS was very aggressive (and creative, at least for such a bureaucracy) in trying to get the word out to the nonprofit community, including using podcasts, YouTube videos, radio PSAs, and so on, encouraging them to file returns to avoid losing tax-exemption. It even posted a list of all the organizations that had failed to file for three consecutive years and then allowed them a further grace period to file the necessary returns to avoid revocation. There were something like 400,000 - 500,000 organizations on that list, and probably 90 percent of them did nothing and ended up having their exemption revoked.

Since then, the IRS has announced procedures for getting tax-exempt status reinstated, but that requires filing a new exemption application. Some 50,000 or so organizations that did lose their tax-exempt status have reapplied in the past several years, and that extraordinary, additional workload on the Cincinnati office that processes exemption applications is one reasons why it now seems to take the IRS forever to rule on new exemption applications and is part, but not the only reason for the highly publicized delay in processing Tea Party applications.