IRS Targeted Open Source Groups Seeking Non-Profit Status
from the don't-they-have-better-things-to-do-with-their-time dept
The latest revelations into the IRS improperly targeting certain types of groups seeking non-profit status revealed a bit of a surprise: open source software operations were apparently a trigger for extra scrutiny. The “be on the lookout” list the IRS used in 2010 included the following entry:
Open Source Software
These organizations are requesting either 501(c)(3) or 501(c)(6) exemption in order to collaboratively develop new software. The members of these organizations are usually the for-profit business or for-profit support technicians of the software.
There is no specific guidance at this point. If you see a case, elevate it to your manager.
Kevin Drum wondered why that would happen, and a reader of his sent in an explanation, suggesting that the IRS suspected that many open source projects were really commercial projects in disguise, and the attempt to get non-profit status was to hide a commercial endeavor:
In short, the IRS is concerned that some of these organizations exist simply to market companies’ software, and perhaps the associated services sold alongside them. The IRS suspects that such organizations would be a better fit for 501(c)6 classification, if anything.
I worked in the field for several years, and while it’d be pretty easy to convince me that some of these organizations deserve closer scrutiny, the IRS’ “screening” has been wildly disproportionate. Groups that are unquestionably above board have been in limbo for years, unable to start fundraising in earnest, because the IRS refuses to finally approve or reject their application for 501(c)3 status.
Honestly, this raises questions about the whole concept of what qualifies as a “non-profit” in the first place, but targeting open source software operations, considering how important open source software has been to the growth of technology and innovation over the past two decades, is fairly crazy when you think about it.