July 2, 2014 by Karen Sandler
Thoughts on the IRS Review of Free Software Nonprofits and Why I'm Not Worried for Conservancy
At the Texas Linux Fest three weeks ago I gave a keynote called “Identity Crisis: Are we who we say we are?”. I talked about the different ways people contribute to free and open source software. I discussed how confusing it can be to understand where the for-profit interests in the software and the nonprofit ideological movement begin and end. The details of my talk were covered on LWN last week. Most importantly, we in this community all face conflicts that can impact the decisions we make and how we are perceived by others. In my talk, I specifically mentioned the IRS, because I sympathize with the difficulty the IRS faces in comprehending what makes a legitimate 501(c)(3) free software public charity. They are new to our complex field. When I was a lawyer at the Software Freedom Law Center I regularly applied for tax exemption for organizations and answered the IRS's questions. I was one of the lawyers who initially worked on Yorba's responses, though I left the work to my capable colleagues when I left to become Executive Director of the GNOME Foundation. Yorba was recently denied tax exempt status, and you can read Jim Nelson's well written post with his reaction to the news.
One point that the IRS examiners all made very clear to me on multiple occasions was that these determinations had no bearing on any existing organizations. This was a question I asked frequently as I was quite troubled by the strange questions they asked and the delays that they were introducing. As a lawyer, I can't give legal advice in a blogpost. I won't opine on what Yorba's letter means for other organizations. But I can take a step back from the rejection and worry less about existing exempt organizations knowing that the rejection does not directly impact us. While the IRS may change its rules with respect to existing nonprofits, the rejection of another organization does not impact them. And a different IRS examiner may have come to a different decision when looking at those facts.
When joining Conservancy a few months back, I looked at our tax exemption application again (the Form 1023 — which I was the primary author of all of those years ago!) and, in particular, the part that described what we intend to do. I was relieved to be reminded that we really described what we do and how we do it accurately. And that the way that we conduct our activities is true to our charitable mission.
I think it can be hard to sort out the corporate interests from the passionate work to make the work better through software freedom. A lot of for-profit companies and trade associations talk a great game about social good. Of course, for-profit companies are committed to shareholder value, and trade associations are required to prioritize a common business interest. Which is why Conservancy as a public charity has an Evaluation Committee that reviews in detail all applications we receive and a staff that oversees the way resources are used, monitoring for corporate control. We have a Conflict of Interest Policy that not only applies to our directors but also to all of our Project Leadership Committees.
must be exclusively devoted to the development of Open Source and Free Software, and that the project must operate in accordance with the with the Conservancy's tax exempt purposes. When projects request admission to the Conservancy, an extensive diligence review is conducted by a committee devoted to this purpose.
Conservancy was founded to be a home for nonprofit free software projects so that they don't have to have lengthy discussion with the IRS, file a lot of paperwork, or take care of a lot of nonprofit corporate minutia, at least not alone. We designed our structure and oversight processes to address many of the worries articulated by the IRS about free software organizations.
It's been nerve racking to watch IRS applications stack up — some have made it through recently and some have not. But I think that if we as a broad community understand our conflicts better (not to mention how a trade association is different from a charity) we'll do a much better job at explaining ourselves to others. If you missed my Texas Linux Fest keynote, please attend my talk at OSCON 2014 later this month, on a similar topic. I'll be sure to leave extra time in the Q&A so we can discuss some of these issues.
Posted by Karen Sandler on July 2, 2014. Please email any comments on this entry to firstname.lastname@example.org.