> 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.
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."
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.
They tried to make the actual points. But they got shot down pretty hard. The real issue seems to be that providing the work without illustrating and tracking who uses the software (so that you're being charitable and helping the less fortunate) means you aren't being charitable...
Personally, they're one of the places I interviewed at right out of college (I got wrecked pretty hard as they were my first ever whiteboard test haha). They're driven and they firmly believe in trying to help people with free software. It's a real shame they got denied.
Yeah, I wish they hadn't been denied as well, particularly given that it probably would have been possible for them to get it if they were really committed. But they would really need to retool their website and other materials (and, if necessary, their actual organizational mission) to communicate the fact that they have some goal other than just making free software. As you say, this could have included taking some concrete steps to ensure that their software benefitted the poor.
> The real issue seems to be that providing the work without illustrating and tracking who uses the software (so that you're being charitable and helping the less fortunate) means you aren't being charitable...
Seems like a pretty shitty reason to deny a possible open source company non-profit status on the grounds they aren't tracking their users.....
The IRS is also concerned about corporations intentionally spinning off projects for the purpose of sheltering some of their activities from taxation.
What red flags you normally for things like that is explicit connections to the for-profit (shared officers, board members, highly paid employees, etc.)
Indeed, while many concerns about Yorba are valid, the IRS claim that FLOSS is not "public work" is troubling and nonsensical. Yorba is not a charity, and not all public work deserves 501(c)(3) status, but FLOSS is public work.
Yeah, the IRS's letter is incomprehensible on this point. Maybe I can help: at it is typically understood, a "public work" is something like a dam, or bridge, or sewer system. As Black's Law Dictionary defines the term, public works are "structures (such as roads or dams) built by the government for public use and paid for by public funds."
It is impossible to know whether this is what the IRS had in mind. But I can tell you that, according to my understanding of the term, and the dictionary definition, it seems pretty clear that it does not cover open source software.
I think "works" can include digital artifacts — to my understanding, this was part of the Mozilla Foundation's rationale for exemption. But Mozilla's "public work" was the Internet as a free platform, not just some piece of software used by some unidentified group of people. Mozilla compared the Internet to a public road, and depicted its role in maintaining the Web as a free and open platform as being similar to ensuring that roads are well-kept and accessible to everyone.
Yorba's application appears to have been more along the lines of, "We make free software. Poor people can use free software and other programmers can learn from it." (I'm basing this on the IRS's response — I can't find a full copy of Yorba's application anywhere.) So I can kind of see why that appears less compelling from a "public works" perspective to the IRS.
> Software is not a public work. The development and distribution of software is not a public work even if published under open source or creative commons compatible licenses because software is not a facility ordinarily charitable to include "erecting or maintaining public buildings, monuments, or works." This language slightly broadens the original formulation from four centuries ago.
It goes on to quote the Charitable Uses Act of 1601.
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 (Yes, it's Wikipedia, but this definition is about right.)
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.
Writing software, in and of itself, does no more to advance science than building houses does to advance structural engineering.
If they are specifically writing software to be used for scientific research, or are carrying out significant research into computing and releasing papers/patents freely, then they might qualify.
To go further, I'd look up exactly what "Public Charity Status 170(b)(1)(A)(vi)" is, and then compare that to how they describe themselves here: https://wikimediafoundation.org/wiki/FAQ/en
In a different thread a couple of days ago, someone mentioned that Apache got a scientific exemption.
Which is not surprising at all, since the Apache HTTP Server had its roots in the National Center for Supercomputing Applications (NCSA), a scientific institution.
Python Software Foundation also got a scientific and educational exemption.
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.
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.
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). 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.
From the previous discussion this link is probably the best advice someone can get:
https://qht.co/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.