Catch up on stories from the past week (and beyond) at the Slashdot story archive

 



Forgot your password?
typodupeerror
×
Graphics Open Source Software United States Your Rights Online

X.Org Foundation Loses 501(c)3 Non-Profit Status 208

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."
This discussion has been archived. No new comments can be posted.

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

Comments Filter:
  • by barlevg ( 2111272 ) on Tuesday August 27, 2013 @08:28AM (#44684971)
    Seriously. How hard is it to file your taxes on time? Or to hire someone to do it for you?
    • by PolygamousRanchKid ( 1290638 ) on Tuesday August 27, 2013 @08:51AM (#44685181)

      How hard is it to file your taxes on time?

      How hard is it to deliver your release on time?

      Hey, we're software folks . . . we just don't deliver on time. The IRS should know this, and cut all software folks some slack on that April 15th date.

      • by Gerzel ( 240421 ) <brollyferret@NosPAm.gmail.com> on Tuesday August 27, 2013 @08:54AM (#44685207) Journal

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

        • by ShaunC ( 203807 ) on Tuesday August 27, 2013 @10:07AM (#44686213)

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

          They have one, but he apparently didn't do his job. FTFA:

          Stuart Kreitman, the X.Org Foundation accountant and Oracle employee, wrote during the Board of Directors' IRC meeting this week, "The status of the 501c3 is lost because we (me) failed to file the 3 past years' tax returns on time. Note that we've Never filed returns since our first re-organization to the LLC in 2005. I was taken by surprize that the IRS hit us so rudely. I've had little issues with my own returns and have always found them to be reasonable and friendly."

          • by M. Baranczak ( 726671 ) on Tuesday August 27, 2013 @10:16AM (#44686311)

            ...Oracle employee...

            I should have known.

          • What gets me is that the IRS chose to wait for 3 years to nail them for a late return.

            • by PRMan ( 959735 )
              And if they had sent them in any time during that 3 years, the IRS probably would have sent them a letter instead asking them to be on time next year.
              • My point is that it appears the IRS did nothing *at all* for 3 years, then ambushed them all at once.

                Surely the IRS should have given them *some* kind of notice about failure to file?

                • by Americano ( 920576 ) on Tuesday August 27, 2013 @01:58PM (#44689197)

                  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.

                  • You completely evaded my point (not missed, but deliberately dodged) that the IRS chose to remain silent about it.

                    • Go read the Board of Director IRC logs for the week of 08-08-2013.

                      SFLC was the address they listed for the foundation on their tax filing; SFLC says "we didn't receive any warnings." That everybody claimed "not to have received anything" doesn't mean the IRS said "we're not going to follow our standard process, which indicates we send notices when we fail to receive Form 990 filings" - and failure to receive the IRS notice in no way exempts them from their affirmative duty to file their tax forms required

          • by tibit ( 1762298 )

            Sounds about as lame as lame can get :(

      • by dpilot ( 134227 )

        The same timely delivery issues could be said of defense contractors and weapons systems.

    • by QuasiEvil ( 74356 ) on Tuesday August 27, 2013 @08:55AM (#44685227)

      Yeah, no sympathy here. I sit on the board of a local historic preservation society, and we're 501c3. We pay our accountant something like $1000/year (some of her rate is counted as an in-kind donation, but nothing we do is really that complicated) and she keeps the paperwork current and straightened out. I'm relatively sure that X.org runs with a bigger budget than we do and could find accounting services, so this is just gross incompetence on their part.

    • by jellomizer ( 103300 ) on Tuesday August 27, 2013 @09:00AM (#44685271)

      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.

      • The default status should be that you pay no taxes. It is up to the government to prove that you should pay.

        • That's what the W-4 is for. Income tracked under your W-4 is proof that you made money that might be taxable. You don't pay taxes if you made no money that year.
      • by PRMan ( 959735 )
        Seriously. Every small church in the Midwest can follow these rules easily (or find someone who can) and some of the pastors are high school dropouts. But a group of smart programmers can't be bothered to figure out how to do it?
    • Well, organizational taxes are substantially more complex. Lacking a full-time accountant(or at least a part time one on retainer) would make it really easy to get overwhelmed.

    • Re: (Score:3, Interesting)

      by JWW ( 79176 )

      This is a scam from the IRS.

      They are doing this to many, many non-profit organizations. Quite a few non-profit organizations are being hit by this and the IRS is taking advantage of the general disorganization and small size of a lot of non-profit groups to pocket themselves a tidy sum.

      The scam goes like this. New policies enacted by the IRS now require non-profits to fill out a card verifying their non-profit status every three years. Now this is simple and easy to do, but its also simple and easy to fo

      • by mark-t ( 151149 )
        Okay.... so if you forget to reregister in a timely fashion, you pay the fine, reregister, and get your status back.

        It seems not terribly unlike letting your driver's license expire... if you forget about it and end up needing it for something (say you were in an accident or something), you'll pay a rather nasty fine... but you can still renew it and get a new one, as long as the time period since it expired hasn't been too long.

      • Oh come off it (Score:4, Insightful)

        by Sycraft-fu ( 314770 ) on Tuesday August 27, 2013 @09:47AM (#44685873)

        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.

        • by JWW ( 79176 )

          Small, all volunteer organizations with virtually no budget are being hit by this as well. They really can't afford accountants.

          I know that these rules are easy to comply with, but they're also easy to miss. Much like rebates and other consumer programs, the system is designed with the idea that many will miss/skip/forget to do the easy tasks that the program requires, and enable the IRS to make money.

      • Which is why all fines collected by an agency of the government should be deposited in the general fund.

        However, given that the IRS is a child agency of the treasury itself a conflict of interest might be unavoidable.

    • Harder than it looks.

      The Gentoo Foundation ran into the same kind of trouble don't forget.

  • by Anonymous Coward

    Why do you have to file taxes if you are tax-exempt?

    • by dicobalt ( 1536225 ) on Tuesday August 27, 2013 @08:31AM (#44684989)
      To prove that you are still in a position of being tax exempt?
    • by Sycraft-fu ( 314770 ) on Tuesday August 27, 2013 @09:53AM (#44685987)

      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.

      • Not to mention that you would *personally* owe income taxes on that brand new salary of yours even if the organization got away with paying it to you in the first place.

        Also, arranging to have the organization pay you such an obscene salary just so you could skim off a donation would probably be malfeasance on your part against the organization, and is tantamount to embezzling.

  • what this means (Score:5, Informative)

    by jbolden ( 176878 ) on Tuesday August 27, 2013 @08:32AM (#44685001) Homepage

    OK the article should have said what this means and didn't. The IRS reinstates 501c3 status pretty easily once you clean up your paperwork. You can apply for retroactive reinstatement but that requires a good explanation of why they didn't file, and if X.org's reason is some variant of "we forgot" that won't cut it. This means they are liable for corporate income taxes but I'm sure their expenses easily kill any income. The big problem is often state taxes apply during the period where they are off the 501c3 rolls. But here they might be able to do OK on an appeal.

    My guess is that this is not going to be too expensive but it will be annoying.

  • by Anonymous Coward

    Tax-exempt status revoked for hundreds of area organizations [sj-r.com] (If you get a paywall you can get past by saving the site source to your hard drive and opening that up.

  • by OzPeter ( 195038 ) on Tuesday August 27, 2013 @08:38AM (#44685059)

    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)

    • by jbolden ( 176878 )

      X.org is the group writing X11. So, no I'd say a large chunk of /.ers if not a majority will use their software during any given decade.

    • by jonsmirl ( 114798 ) on Tuesday August 27, 2013 @09:02AM (#44685295) Homepage

      X.org is not a company. It is is a group of volunteers, either individuals or corporate employees begin donated by their employers. The group writes and maintains the Xserver which is in use on almost every Linux desktop and many embedded systems. This code is given away for free to benefit all who use Linux.

      If that doesn't qualify as a 501(c)3 I don't know what would qualify. The group has no revenue, they rely on donations to function and everything they make is given away for free -- to anyone who asks with no restrictions other than some minor licensing terms. And the licensing terms are really minor, like give proper attribution to the authors of the code. The benefit from being a 501(c)3 does not accrue to X.org, the tax benefits goes to the companies donating to the organization since those donations are now tax deductible. Hopefully that means X.org will get more donations.

      I do agree that a few companies seem to be abusing 501(c)3 and open source. Those companies are making captive open source projects which basically only benefit themselves. But that's more of a marketing gimmick than a tax avoidance one. The resources being given to the captive 501(c)3 were deductible to the parent corporation anyway. So if the IRS dissolves these captive 501(c)3s they aren't going to get any more revenue. They'll just move where the deductions are being taken.

      • If that doesn't qualify as a 501(c)3 I don't know what would qualify.

        I think you are misunderstanding what is going on here. X.org qualified as a 501(c)3 corporation. They lost the qualification because they didn't file the required income taxes. This is completely X.org's fault.

        • by JWW ( 79176 )

          I love how everyone here is basically hammering on the point that non-profit companies should by default be required to file taxes, even though they never have to pay them.

          I understand that tax policy requires forms. What I'm railing against is that theres always a form and the government keeps asking for more and more forms.

          Forms.... the lifeblood of bureaucracy.....

          • I love how everyone here is basically hammering on the point that non-profit companies should by default be required to file taxes, even though they never have to pay them.

            It's the cost of accepting donations. How will the government or even the donors know that everything is above board without regular filings of income statements and tax forms?

            "Trust us" isn't good enough.

      • by rtaylor ( 70602 )

        The group has no revenue, they rely on donations to function and everything they make is given away for free

        Prove it. Show me the paperwork.

        That is the core of the issue. X.org is required to submit proof of this belief on an annual basis to IRS. They didn't do that.

        • I'm not an insider but I suspect this has to do with Oracle's acquisition of Sun. Sun used to take care of X.org. Now that Oracle has swallowed Sun a lot of things that Sun used to do have been cut. So X.org needs some new friend with a legal and tax department to keep everything in order. Groups of volunteer programmers are known not to be competent in these matters.

    • It's newsworthy on slashdot because a nerdy site was involved. And I think that an organization responsible for a pervasive technical standard qualifies as nerdy.

  • 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.

    • Re:not worth it (Score:5, Insightful)

      by bobbied ( 2522392 ) on Tuesday August 27, 2013 @09:27AM (#44685619)

      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.

      • I was treasurer of a small non-profit ($200k/yr) and our Form 990 filing ran about 60 pages. That's tedious, but was normally straightforward. The interesting part came when filing for the automatic 3-month extension* (Form 8460?) in the mail. The USPS seems to tuck these forms behind the counter, and wait till the deadline passes. Then the IRS would take a month to tell us that the extension was received 3 days late, and we owed them a fine of $1000/day for 40 days. Then we'd appeal, say we were sorry

    • by Slamtilt ( 17405 )

      It does in fact do a lot of good. For example, you can attract more donations if you're a c3, because you can deduct those donations from your income. Also, a lot of vendors and service providers will give a large discount for c3s when they buy their stuff.

      You still have to file your paperwork.

  • by Terry Pearson ( 935552 ) on Tuesday August 27, 2013 @09:20AM (#44685513) Journal
    Meanwhile, no one has a problem with the National Football League being considered "non-profit" by IRS standards ( http://www.usatoday.com/story/sports/nfl/2013/05/29/nfl-sports-leagues-irs-tax-exemption/2370945/ [usatoday.com] ). I am not saying that X.org did not screw things up, but we certainly have some strange qualifications to benefit from non-profit status. X.org sounds like they had some trouble filing, but I am sympathetic to non-profits in general having difficulty filing. Oftentimes, they really are run by people who are passionate about their cause, but not necessarily familiar with the accounting standards needed to remain in good standing with the IRS. Compliance with reporting requirements can cost you a lot in accounting fees and time.
    • Oh I have a problem with it. My point of view is that those with money like the NFL can always find a way not to pay taxes. Corporations do it all the time. At the same time, politicians want to make you believe that any one trying to correct these disparities will come into town looking for your women and children for blood sacrifices.

      While I don't think the IRS is a benign entity, their hands are tied in both cases. Tax-exempt organizations have to file on time. Even though the NFL might make billions

    • Meanwhile, no one has a problem with the National Football League being considered "non-profit" by IRS standards

      What does the NFL as an organization make for profit? Each individual team is owned by someone (or a group) that pays taxes on their team's profit (in theory, at least). The NFL itself, though, doesn't have an owner or shareholders. Of course you can argue about how much the top-level executives get paid, but they should be paying taxes on their salaries just like any other full-time employee of a non-profit.

  • It was not that IRS had any "hate" for this kind of activity. It was just a series of sloppy club treasers failed to file the necessary paperwork.
  • I have to side with the IRS on this one. BTW, I'm a software developer
  • Many open source projects and organizations aren't a business, and it can be challenging for nerds to keep track of tax rules for various organization types. Depending on where you have your base the rules may differ, and there may even be rules that exempt you from filing the taxes at all.

    Maybe it's time to look around for another home for some non-profit organizations where the political climate is better.

    • Many open source projects and organizations aren't a business, and it can be challenging for nerds to keep track of tax rules for various organization types. Depending on where you have your base the rules may differ, and there may even be rules that exempt you from filing the taxes at all.

      Which is why you get an accountant.

      If you accept money, prepare to get an accountant. No one made X.Org accept money.

If you have to ask how much it is, you can't afford it.

Working...