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Government Open Source Software United States

The New 501(c)(3) and the Future of Open Source In the US 228

Posted by Soulskill from the learning-at-the-speed-of-government dept.
An anonymous reader writes: If you're involved in the free and open-source software movement — especially in the United States — you may want to read through this, as long as it may seem. It appears that the United States' Internal Revenue Service has strongly shifted its views of free and open-source software, and to the detriment of the movement, in my opinion. From the article: "The IRS reasons that since Yorba’s open source software may be used for any purpose, Yorba is not a charity. Consider all the for-profit and non-charitable ways the Apache server is used; I’d still argue Apache is a charitable organization. (What else could it be?) There’s a charitable organization here in San Francisco that plants trees throughout the city for the benefit of all. If one of their tree’s shade falls on a cafe table and cools the cafe’s patrons as they enjoy their espressos, does that mean the tree-planting organization is no longer a charity?"
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The New 501(c)(3) and the Future of Open Source In the US More

The New 501(c)(3) and the Future of Open Source In the US

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  • Don't mention the tree-planting thing! (Score:5, Funny)

    by halivar ( 535827 ) <bfelger@gmai l . com> on Tuesday July 01, 2014 @01:28PM (#47362233)

    You'll only give them ideas.

    • Re:Don't mention the tree-planting thing! (Score:5, Insightful)

      by BenSchuarmer ( 922752 ) on Tuesday July 01, 2014 @02:47PM (#47363039)
      Trees produce oxygen. There's no telling who might be inhaling that oxygen!!! They could be supporting not just commercial customers, but criminals and terrorists!!!!!

      • Re: (Score:3)

        by lgw ( 121541 )

        Tax em all! As the US goes broke, anything and everything than can be changed to tax people more will be changed (yes, even the rich will be taxed more when we're broke enough, not that that will help much). What? Spend less instead? Which politician is going to give up those wonderful tax dollars flowing to his donors? The left? The right? Didn't think so.

        • Latest BIS report shows $710 trillion in derivatives. The Fed expanded its balance sheet from $1 trillion to $4 trillion. Money is not a scarce resource. Eliminate the debt ceiling and fund govt at zero cost.

      • Trees produce oxygen. There's no telling who might be inhaling that oxygen!!! They could be supporting not just commercial customers, but criminals and terrorists!!!!!

        They could be burning it with carbon for profit!

      • If this interpretation of IRS's intent is correct, it's ridiculous.

        Let's say I go to a food bank (a charity). Hmmm... I could use that can of tomato sauce to shatter somebody's windshield.

        I could use a potato to block someone's car exhaust. Or -- naughty of naughties -- use it as ammo in a potato cannon! (Which, by the way, ATF has ruled "not a gun".)

        Hey... I could even use the cans from that tomato sauce to make a potato cannon... now we're starting to get somewhere!

        I guess we should probably j

        • Re:Don't mention the tree-planting thing! (Score:5, Insightful)

          by Archtech ( 159117 ) on Wednesday July 02, 2014 @06:57AM (#47367361)

          The IRS and corporations have this in common: they want everything to be measured in terms of money, and have no interest in anything that can't be measured in money. Consequently, they mistrust and dislike anything that is exchanged freely: they see it as theft from them, as they are entitled to a cut of every transaction.

          Let's barter informally as much as we can, just to spite the bastards.

    • Re: (Score:2)

      by felrom ( 2923513 )

      The entire IRS needs an enema from top to bottom. Gut their mission, strip their power, and reduce them to the few functions we actually need them to do.

      Then repeat with the ATF, DEA, DOE (both of them), EPA and FDA.

      • Re: (Score:2)

        by SumDog ( 466607 )

        umm...extreme much? The EPA has been striped of most useful powers and allows industry to pollute uncontrollably. Just look at Fraking.

    • Re: (Score:2)

      by GNious ( 953874 )

      Time to take commercial advantage of a lot of For Charity organizations ...

  • 501(c)(3) Classes (Score:5, Insightful)

    by TechyImmigrant ( 175943 ) on Tuesday July 01, 2014 @01:28PM (#47362245) Homepage Journal

    From the wikis: charitable, religious, educational, scientific, literary, testing for public safety

    Why do you need to be charity? Why not educational/scientific?

  • The charity plants trees, the city contracts out tree maintenance - limited profit.

    Open SW developed, released by charity, for-profit service organization ecosystem springs up to support - loads of profits to companies that contributed resources/finances to development.

    I don't agree with IRS in this case, but their reasoning is approximately sound.

    • Re: (Score:2)

      by vandon ( 233276 )

      No, your reasoning is NOT sound....Both Goodwill and Salvation Army take donations both monitary and material and sell the material items...for money.

      How is having a paid support structure where the money goes back into the charity for more charitable uses any different than both of those?

    • Re: (Score:2)

      by Znork ( 31774 )

      For-profit ecosystems spring up around many charities; everything from environmentalism to religions spawn such commercial activities around them.

      The issue that should be at the heart of the matter is whether some person or company specifically and exclusively stands to profit from the charities work. As long as anyone who wants to can engage in commercial activities related to the work, such as commercial sales of religious texts and figures, sell eco friendly products, use charity relations in branding an

  • ah (Score:5, Insightful)

    by Charliemopps ( 1157495 ) on Tuesday July 01, 2014 @01:38PM (#47362367)

    So... a non lawyer got a request from the IRS to explain his charitable status, they decided he wasn't a charity, and now he's posting to a blog that the entire open source world is coming to an end? I think dude needs to spend more time getting a lawyer and less time posting to slashdot.

    I HATE the IRS with a passion. This stuff should be easy. But the fact of the matter is, it's not. You need legal representation if you're going to be a 501(c)

    Then we have this: "We have no plans to appeal their decision."
    ok... so what's the point of this post? If you're agreeing with them, I don't get it. If you're not agreeing with them, but just rolling over, then you deserve what you get.

    • Re: (Score:2)

      by Flammon ( 4726 )

      If you're not agreeing with them, but just rolling over, then you deserve what you get.

      Will you be paying their legal bill? No? Then STFU.

  • Yes, maybe... (Score:3)

    by kenh ( 9056 ) on Tuesday July 01, 2014 @01:41PM (#47362401) Homepage Journal

    If one of their treeâ(TM)s shade falls on a cafe table and cools the cafeâ(TM)s patrons as they enjoy their espressos, does that mean the tree-planting organization is no longer a charity?

    If the cafe, through it's donation, is able to direct where the charity puts it's trees AND the charity places the tree in a location solely for the benefit of the cafe, then that charity is (in my mind) no longer a charity, it is at least a part-time landscaping firm.

    • Re: (Score:2)

      by Ichijo ( 607641 )

      Does it often happen that a change to open source software benefits only one person or organization?

  • Hmmmmm.... would this benefit corporate interests? When the government makes any decision that is the only question that needs to be asked. The only time the answer is in doubt is if there are no corporate interests or the corporate interests are exactly balanced.

    So while I agree with the sentiment about this being deeply unfair, this is not thereal issue. If anyone wants to be upset about this issue and is willing to do something about it then join the movement to get corporate money out of politics; fu

    • That's easy for you to say, you're the Emperor!

      In all seriousness I agree. And comparing this guy with the Apache Foundation is wrong, not because of his summary of the issue, but for exactly the reason you state. The Apache Foundation has corporate backers with corporate interests. Heck, isn't even Microsoft a supporter?

      They're not going to challenge the Apache Foundation's 501 status because it's too well established, has a lot of powerful backers and provides wealth and benefit to the corporate community

    • If anyone wants to be upset about this issue and is willing to do something about it then join the movement to get corporate money out of politics; full stop.

      Let me guess - by dumping shitloads more money into politics?

      Yea, that'll work about as well as trying to keep a boat from sinking by filling it with water.

      • The money has to come out of politics. What is your suggestion?

        PS I am not being sarcastic. Short of going back in time and asking for a few changes to the constitution, I am not sure what would work as money in politics seems to be a one way street.

  • At MIT, lot of research is done and published and the results can be used for anything including making weapons of mass destruction by terrorist and dictators. How come MIT research is tax exempt? In fact, both MIT and Yorba are involved in doing things which are good for the whole humanity without directly profiting from it and hence both should qualify EQUALLY. If one is banned then the other should be as well. In fact MIT and other educational institutions often directly work with commercial organization

  • Missing the Logic (Score:2, Interesting)

    by Anonymous Coward

    I think everybody is missing the logic of the decision.

    This probably isn't concerned with whether an organization like Apache is doing charitable work. All things being equal, the IRS would undoubtedly accept that.

    But all things aren't equal, because you have an army of lawyers and MBAs who spend all day thinking about tax avoidance strategies, in an epic arms race with the IRS.

    I suspect the root of the issue is companies taking deductions on contributions to open source projects, when the projects are real

  • Not a precedent (Score:5, Insightful)

    by mark-t ( 151149 ) <markt AT nerdflat DOT com> on Tuesday July 01, 2014 @01:59PM (#47362589) Journal

    While this might seem to suck, I know from first-hand inquiries that it is not possible to allow a charitable organization such as a church, for example, that has a kitchen to allow their kitchen to be used even by one of its own members for any kind of commercial purpose, even if the church receives absolutely *NO* benefit from said use. Allowing it would jeopardize the church's tax-exempt status, so it's not allowed.

    Really, if you want to be a charity, then you can't allow your resources to be used by people with commercial interests. Sucks for open source organizations that want to act as charities, and I can see it being detrimental for some donations because I know that getting a tax exemption does motivate some people to donate.

    But bear in mind that if tax-exemption were really the only reason or even the primary reason why people might donate to a cause or organization that they may believe in, it's highly unlikely that something like crowdfunding would ever work, and we have plenty of evidence to show that it does.

    • Really, if you want to be a charity, then you can't allow your resources to be used by people with commercial interests.

      And if someone gets rich using knowledge from an educational book published by a charity, does that invalidate the charity? What are "resources" in this case? I'd think the resource of a charity like this is the time people invest into it, not the results themselves, or their transitive implications.

    • So no science can be done for charity. All research of any kind can be used by for profit.

    • Re: (Score:2)

      by vux984 ( 928602 )

      While this might seem to suck,

      It more than sucks. It is wrong.

      How many charities raise money for curing cancer or raising money for alzheimer's etc... are not any cures and treatments arising from the research they fund going to be commercialized at least in some way? Someone is going to make the pills and for profit. Someone is going to bill the insurance companies when they prescribe them, etc, etc.

      This -seems- to set a bad precedent.

  • This is being blown out of proportion (Score:3)

    by techsoldaten ( 309296 ) on Tuesday July 01, 2014 @01:59PM (#47362591) Journal

    This is scary but ultimately a decision that needs to be appealed.

    I own a small company that works with Drupal. I am a member of the Drupal Foundation and give as generously as possible to their events.

    Similar determinations have been made by the IRS before and challenged successfully. It is important that Yorba stands up for themselves on this matter and establish the scientific and educational validity of their claim to 501 c3 status.

    There is an important point in the lifecycle of every open source project, where it goes from being a small hobby to something having an ecosystem that must be managed. It's essential that there is a way to provide fiscal support for groups springing up around the management of these projects without creating a tax burden.

    The IRS judgement pertains really seems to only include an established software project, and not one that is supported by a small community. I am not sure there is a way for them to make a determination between the two. IANAL, but I am sure this is important in distinguishing the legitimacy of 501c3 claims.

    • As a former employee of Yorba, I can assure you they do not have the resources to sue the IRS.

  • My read of this is that they applied as a charity, but the IRS's definition of a charity requires that you be serving a distinct, disadvantaged group of people. A quick look at the software that Yorba produces (http://yorba.org), does not lead me to believe that their software would particularly benefit any specific disadvantaged groups more than other people.

    So by the rules that the IRS is working on, it does appear that they do not qualify as a charity. And to be honest, this is a correct definition, they

    • My read of this is that they applied as a charity, but the IRS's definition of a charity requires that you be serving a distinct, disadvantaged group of people. A quick look at the software that Yorba produces (http://yorba.org), does not lead me to believe that their software would particularly benefit any specific disadvantaged groups more than other people.

      So by the rules that the IRS is working on, it does appear that they do not qualify as a charity. And to be honest, this is a correct definition, they are not running a charity. Now there is a valid question about whether there should be a method for them to run a non-profit without being taxes, but they are not a charity.

      There are many kinds of Charitable organizations. But 501(c)3 does not necessarily mean a Charity as you describe, though it does allow you to take donations. Most of the 501(c) organizations are pretty specific in what they may serve; 501(c)3 is the exception in that it is a lot more general.
      The Wikipedia Article on 501(c) organizations [wikipedia.org] is actually pretty good. Of course, you can also go directly to the IRS information [irs.gov] too, but I find the Wikipedia article to be easier to read.

    • they were not trying to be a charity. (Score:4, Informative)

      by ZombieBraintrust ( 1685608 ) on Tuesday July 01, 2014 @03:23PM (#47363347)
      not quite. They wanted to be a 501 c. this includes non charities:

      501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

      They applied under charity, education, and science. Scientific seems the best bet. By providing source code you could say they are advancing computer science. But it is a stretch. The IRS instead saw Yorba as a provider of free stuff. Free stuff is nice but it isnt' advancing science or education. Free stuff is only charity when it is provided to a disadvantaged group of people according to the IRS. Note that environmental activism does not appear in that list. I don't think planting trees would quilify at all as a non profit. (unless it was done in a disavantaged neighborhood)

  • Probably not wrong (Score:3)

    by spopepro ( 1302967 ) on Tuesday July 01, 2014 @02:04PM (#47362633)
    When I was on a board that was incorporating a not for profit organization it was enlightening to hear that while 501(c)3s dominate the conversation, they aren't appropriate for most causes. Part of my understanding is that a 501(c)3 is a public, mutual benefit corporation where all assets are actually owned by the public, should push come to shove. It seems like for structure, ownership, and purpose, something like a 501(c)4 or (c)8 would be more appropriate. Of course, 501(c)3 has been baked into so many things, that there are orgs that will not donate unless you have a (c)3, even though there are other tax-exempt designations that also give you a break. Of course, IANAL, YMMV, Your state sucks and works differently, etc, etc.

    • Part of my understanding is that a 501(c)3 is a public, mutual benefit corporation where all assets are actually owned by the public, should push come to shove.

      I'm sorry, but you're confused -- that's not correct at all. The assets of a 501(c)3 have to be transferred to another exempt organization if the organization shuts down, but they are in no way owned by the public. We had that baked into our articles of incorporation [free-spirit.org] but I'm not sure if that's a requirement.

      501(c)3s can include religious corporatio

  • That's a flavor of non-profit which is not a charitable organization.

    Disclaimer: I am in no way a member of the legal profession nor am I trained in law.

  • If only Yorba had a SWAT team instead of just some software...

  • If all the organization does is release code under an open source license, then they're not collecting money. If the organization is charging for services relating to that code, then there's something to tax.

    If my garage inflates tires, I'm using a free resource (air). My garage might even inflate tires for free (charity) to get people to come in. That doesn't make my garage a charity.

    If the organization doesn't collect money (or turn a profit), then there will be no income taxes to pay. It sounds like

  • The IRS isn't necessarily saying Yorba can't function as a not-for-profit, but that it doesn't qualify as one under section 501c3. There are other forms of not for profits that may be more applicable. Personally, I would never have thought of Yorba or the other entities listed in the summary as charities, not for profits, yes, just not a charity. The two are not interchangeable terms.

  • Without some reasonable crackdown, anyone could set up a 501(c)3 that donates software to various entities and - in an unrelated coincidence - receives donations from those same entities (or related entities).

    To put it more concretely, Yorba receives money for software development - often but not always by the same people who use the software. This is a normal activity of for-profit companies. You aren't allowed to take a for-profit company, rename "license fees" as "donations", and claim tax exempt statu

    • Re:They've got a point. (Score:5, Interesting)

      by rjstanford ( 69735 ) on Tuesday July 01, 2014 @04:02PM (#47363649) Homepage Journal

      I recommend reading the excellent IRS writeup posted at http://yorba.org/docs/IRS-dete... [yorba.org] by the way.

      One of the key phrases:

      Developing Open Source Software Is An Activity Ordinarily Carried On As An Incident To Commercial Or Industrial Operations

      In a nutshell, Yorba failed to properly differentiate themselves from a traditional for-profit company. As a for-profit software company owner, I'd say that that's a fair statement. If Yorba was actively engaging in outreach to provide free software to schools (and then incidentally released it to the public), again that would be different.

      When you apply for 501(c)3 status you're asking that the general public subsidize your business. Its not unreasonable to require a significant burden of proof before such a federal subsidy is granted.

  • The logic used by the IRS is dubious and daunting. That someone could potentially use something you are giving away for a commercial purpose... does not make sense as reason to deny exemption status.

    The propagating effects could be devastating, even beyond open source software. This is basically a blank cheque for them to deny exemption arbitrarily and extrajudicially; if you dig far enough and raise the threshold for degrees of separation as high as you want, you could come up literally any reason you wa

  • SoylentNews has decided to avoid non-profit status due to the demands it puts on the organisation [soylentnews.org], so they're now trying to set up as a slightly more normal "we don't actually want to make money" benefit corporation.

  • Consider the high percentage of University/College grads who go on to work for companies.

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