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>> I think this comment by patio11 is very relevant here:

> "We don't donate to OSS software which we use, because we're legally not allowed to.

I routinely send key projects, particularly smaller projects, a request to quote me a commercial license of their project, with the explanation that I would accept a quote of $1,000 and that the commercial license can be their existing OSS license plus an invoice. My books suggest we've spent $3k on this in 2015. My bookkeeper, accountant, and the IRS/NTA are united on this issue: they don't care whether a software license is OSS or not. A $1k invoice is a $1k invoice; as a software company, I have virtually carte blanche to expense any software I think is reasonably required, and I think our OSS is reasonably required.

This shoots red flags, so I'd like to share:

Anti Money Laundering:

Any auditor, bank, investor, or interested party, is required to ensure money laundering is not part of a business plan, just a compliance step. Donating to 'associate' with 'suggestions' of the price need this in some for of documentary proof for the 'suggestion'. As the software is Open Source, where's the value-added vs. throwing $1000 to a friend? S/PaaS is the answer, but it should be documented.

Anti-terrorist financing:

Yes, this is a thing (on the receiver side). Not to worry about unless your don't have multiple small transactions coming to your bank account in a short period of time (perhaps sending an email asking for donations) at which the account and ownership should be inspected by the receiving bank. Get 100 donations of varying small sizes, $1+ in a short period of time, expect to get flagged as possible.

Just a heads-up on compliance for how unexpected regulation can stop throw a small cog in the wheels of what you want to do.

No.

The point of paying them after an actual invoice is that they're running a business and have to report that income to the IRS, and you have an invoice to show the IRS for your business.

I think zhte415 is just saying there are some things to watch out for, not that they are disagreeing.

These things make sense to me: - You need an invoice for the IRS - Sometimes bad things happen sending money - Sometimes bad things happen receiving money

All this seems reasonable, so your "no" is confusing.

Correct.

Receiving and sending money isn't just about having an invoice, it about documenting that business decisions were made for ethical reasons.

Getting a bank account suspended because of AML/ATF automatic red-flags is a major risk for any small business.

> >> I think this comment by patio11 is very relevant here:

> > "We don't donate to OSS software which we use, because we're legally not allowed to.

> I routinely send key projects, particularly smaller projects, a request to quote me a commercial license of their project, with the explanation that I would accept a quote of $1,000 and that the commercial license can be their existing OSS license plus an invoice. My books suggest we've spent $3k on this in 2015. My bookkeeper, accountant, and the IRS/NTA are united on this issue: they don't care whether a software license is OSS or not. A $1k invoice is a $1k invoice; as a software company, I have virtually carte blanche to expense any software I think is reasonably required, and I think our OSS is reasonably required.

> This shoots red flags, so I'd like to share:

> Anti Money Laundering:

Negotiating a price isn't money laundering. If you have records of your customers, then you have proof you weren't laundering money.

> Anti-terrorist financing:

If you do what SQLite does (they either sell their software for $1000 or give it away gratis), then this isn't an issue.

A non-profit sells membership stakes and/or asks for donations as their safest forms of revenue.

Selling a product [even as a software license], iirc, is a legal mess akin to what he is complaining about.

https://www.irs.gov/Charities-&-Non-Profits/Unrelated-Busine...

https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organ...

So you'd need to be careful not to stray out of those exemptions which means you can't pay people among other things. Patio11 really just wants to shift the tax compliance mess onto the OSS which I sort of get but at the same is alot more convoluted than a business donation in the US.

Unrelated business income is a very risky business for any sort of non-profit endeavor because it risks you losing your non-profit status.

Patio11 is basically saying "Run a for-profit company for FOSS" operations.

From the second link you posted, why couldn't selling a license be considered "selling donated merchandise" (the code is the merchandise) and therefore exempt from being taxed as unrelated business income?

Either way, you make a really good point. Just getting tax exempt status and dealing with processing invoices would be a huge hassle for probably the vast majority of FOSS projects, which may have a vibrant community but are really just a handful of people in various parts of the world pushing commits to a repo.

It seems like there could be a great opportunity for some kind of platform company that handled all this hassle for FOSS projects that want to offer paid licenses.

> From the second link you posted, why couldn't selling a license be considered "selling donated merchandise" (the code is the merchandise) and therefore exempt from being taxed as unrelated business income?

FOSS expenses are generally related to giving the developers money to do X or for infrastructure. [e.g. Pay for bug bounties, pay for security audits, FreeBSD's utility bills for electricity]

At which point, it isn't "donated merchandise" as you are paying for some of the contributions and/or using sales to fund your infrastructure. That is a slippery slope to audits which is the sort of mess that Patio11 is trying to avoid on his end by exporting it to the FOSS end.

Except, this time, instead of line items its integral to the entire code for the project in some cases which risks calling the entire project into question. [e.g. security audits, paying for infrastructure]

> It seems like there could be a great opportunity for some kind of platform company that handled all this hassle for FOSS projects that want to offer paid licenses.

This isn't a SaaS platform opportunity. This is a "You have to pay a CPA and a Non-Profit Tax Attorney" situation to make sure you are on the right side of the law with the entire process from end to end.

https://blogs.gnome.org/jnelson/2014/06/30/the-new-501c3-and...

> The requests for clarification contained mostly non-surprising questions. For example, “Describe whether your organization provides any goods or services for a fee.” (We don’t.) Some were odd: “Will any of your directors or employees reside at your facility [i.e. our office]?” (Ah…no.)

> You have a substantial nonexempt purpose because you develop software published under open source compatible licenses that authorize use by any person for any purpose, including nonexempt purposes such as commercial, recreational, or personal purposes, including campaign intervention and lobbying.

These are the sort of questions you get asked as part of the 501(c)3 process and this would qualify as "providing any goods or services for a fee" almost certainly.

Really, in order to sell licenses like Patio11 would like, you need to be a For Profit entity. You have no chance of going any other direction.

Selling a "license" generally denotes a for-profit activity anyway. I tend to avoid the thought of taking "donations" because they are a tax headache for anyone and everyone involved (many people incorrectly assume that any donation is tax-deductible, and I still have to pay income tax on them as I am most certainly not a charitable entity)

Many FOSS projects/groups are non-profits.

FreeBSD, Apache, etc.

This being the case, it made sense to point the obvious problem with the "sell a license" issue. I'm not saying a for-profit is "wrong" but you aren't taking tax deductible donations if you are running a for-profit.

no-profits can engage in for-profit activities. They just need to use the profits to achieve their goal. Otherwise no non-profit could be organizing a conference since selling tickets is a for-profit activity.

Not if they sell the tickets at-cost.

except for trivial cases you can't sell tickets at cost - there are way too many factors at play and you need some extra budget in case things go haywire (and they will). You want to plan your budget so that the conference is slightly profitable. BTW: Accepting sponsoring is a for profit activity as well - you get money and perform a service in return (advertise the sponsor etc.)

> They just need to use the profits to achieve their goal.

No. That is absurdly wrong.

https://www.irs.gov/Charities-&-Non-Profits/Substantially-re...

> To determine if a business activity is substantially related requires examining the relationship between the activities that generate income and the accomplishment of the organization's exempt purpose. Trade or business is related to exempt purposes, in the statutory sense, only when the conduct of the business activities has causal relationship to achieving exempt purposes (other than through the production of income). The causal relationship must be substantial. The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related.

i.e. The activity has to have a causal relationship to the exempt purpose regardless of the profit motive.

Good luck convincing people software licenses qualify in the current environment without a CPA and a Tax Attorney managing things end to end.

It can be done but not from the angle you claim. It has to be done for the direction of "This is our exempt purpose and by providing X we further that purpose despite the monetary gain to cover expenses."

> This isn't a SaaS platform opportunity. This is a "You have to pay a CPA and a Non-Profit Tax Attorney" situation to make sure you are on the right side of the law with the entire process from end to end.

For sure. It's definitely not a purely software oppirtunity.

I'm just looking at the situation and seeing something interesting: there are companies that have the money and the will to pay for FOSS projects, and there are FOSS projects that would benefit from the money, but due to their small scale they can't reasonably deal with all the hassle involved in becoming an entity that can take advantage of the mo ey companies are willing to spend. Maybe some kind of third party could centralize that hassle and make it super easy for FOSS projects to get some useful cash. I have no idea how that would be structured or even if the market is there or if the unit economics would make sense.

I don't see a really good point in the children of this sub-thread to post this, so I'll just go here and hope it gets attention.

I'm seeing a lot of contention over selling a license for a product. Would it be a viable workaround to sell installation media? I know OpenBSD sells CDs of its releases, though I am not sure I know the details of that (there seems to be a difference between the OpenBSD CDs and the OpenBSD Foundation).

Probably but I'm not saying "its impossible" but rather "You need a CPA and tax attorney to cover your ass appropriately" at which point is there enough people like Patio11 to cover that cost?

OpenBSD is also Canadian which is neither American or Japanese [which is the part the original parent was talking about] so I don't know their tax laws at all. :/

Individual donations and corporate donations are a course that don't require that level of expertise to execute on as a revenue source.

Running a for-profit that sells software licenses is the cheapest way to comply if you intend to sell software licenses as you don't need to pay a 3rd party to prepare taxes for your LLC and advise you on how to keep your 501(c)3 exemption.

Legally not allowed? You can donate to anybody you please I would think.

Anyway I'm all for using software you pay for, because it has a higher probability of being around next year. One person donating a responsible amount is not going to guarantee that. Its a start I guess.

Using software you pay for, or pay for software you use? In the end, the money goes to the same place.

Its just that (almost) nobody pays for open software. Its the tragedy of the commons or some such. Being the only guy to do so, hardly begins to help insure the product will be around in a year.

No, it does begin to ensure it. It doesn't do the whole job, you need others to do it too, but it's a necessary step.

There's more explanation at the link, it's largely a tax thing where a donation ends up being more expensive than an invoice. It's also apparently uncomfortable for the donation to come from the company.

Uncomfortable's a good descriptor. I get the impression Patio11's involved in mostly "solo" enterprises. If that weren't the case, I'd like to think he'd run these "discretionary expenses" by his partners.

> Legally not allowed? You can donate to anybody you please I would think.

The point patio11 makes here is that as a company things are not so easy:

> Both countries are very lenient with regards to necessary business expenses (必須経費 over here). Neither particularly likes arbitrary money moving out of the company; that smacks of unreported income.

("unreported income" here means money paid to an employee but not reported as income). With a proper invoice and line item, all the boxes are checked and a random audit won't fall on the company like a ton of bricks.

Even if the system handles company donations, that tends to be more complex both internally and externally than a "software license" line item, and thus to have way more overhead and to be way more likely to be refused.

Oh, corporate rules. Sure. So "its legally difficult if I'm to keep my tax write-off" would be a better statement? Because it could be a personal donation.

> Because it could be a personal donation.

Not if it came out of the company's coffers.

But yes, if you change the premise of the original comment, sure, you can easily make a personal donation to an OSS project.

I thought the original comment was about contributing as in, doing work for. But I see the interpretation of "giving money" now, thanks!

The original comment was about donating not contributing, and the whole thread is in the context of corporate donations since that's the subject of TFA.

The comment was made under the discussion Ask HN: Does your company donate to free software it uses?.

I guess I think the positioning in the linked comment is bombastic, but litigating it out of context is boring.

it's not corporate. Once you're some sort of LLC/GmbH, no money can leave the company without some sort of record who received it and why. That record is conveniently an invoice, but it can also be a receipt for the donation by an established charity etc.

The key aspect here is "established charity" recognized in the country where the company is located.

It could be a personal donation. But then tax takes part of it first. Basically, would the OSS project like €1,000 or €500? Because either way the company has to pay €1,000.

Purchasing a license that's identical to one you know is freely available doesn't fit the English language meaning of 'necessary business expense'. Maybe the actual technical definition is a little different, but I don't see what fraud is being prevented by restricting donations if companies can just buy things for far above market value.

Let's say I fix patio11's backyard patio. Instead of requesting payment for the work, I fork Django and send him an invoice for a license. He pays me thousands of dollars for a commercial, OSS Django license, and writes it off as a necessary business expense.

It's the same scam whether it's a donation or a license purchase. I just don't get the point.

Fraud requires intent to defraud.

You're defrauding the IRS out of tax revenue by writing off OSS donations as business expenses when the product is free.

Then you can structure the invoice to include an hour of consultation time. In any case, the transaction is a taxable event - it just depends on who pays (your corporation, the recipient, or the US government (if you are paying a nonprofit)).

I think what he is saying is that it's easy for him to buy a commercial licence for Open Source software (even if the licence doesn't grant him any additional right or service) but donations are legally harder to pay before tax.

I think it boils down to the fact that you can have business expenses, you deduce that from your revenue and it's all good, but other than that if you want to get money out of your company (salaries, dividends, etc.) you're being taxed.

I guess the tax office wouldn't want you to just "donate" money from your company to get it out without paying taxes.

It must be the cross-govt payment/tax issue?In the US its dead simple. Django has a Corporate Membership that covers just this case.

I hate to be a buzz-kill, but I have never "paid for" Linux.

Well, maybe I have... through some hierarchical, open-source, licensing "tax".

what do you mean?

That "paying for" software means "it will be around next year".

The part that confused me was his claim that these are "necessary expenses" when in fact, they aren't. Very shaky ground.

>Legally not allowed? You can donate to anybody you please I would think.

Cooperations can probably only donate to 501(c)(3)s without it being considered paying someone off the books or, worse, money laundering by IRS standards.

If the project doesn't have any ability to send an invoice then they probably aren't formal enough for a 501(c)(3).

That being said, its only a few clicks to send someone an invoice in PayPal so its a little odd this is a difficult thing for an open source project to do.

Ubuntu does this, don't they? They charge you a license for a year of support...

Do they actually provide support? Like an email address where you can get questions answered? That's a lot different than just stapling an invoice to the free license that everyone gets.

Piggybacking your comment:

In Germany, the legislative has created a way to handle this:

If you are a recognised nonprofit ("gemeinnützige Organisation ") you can give your donors donation receipts which count for tax purposes. It is literally an invoice for a donation, but importantly the transaction will not be taxed, the donors simply deduct it from their income and the recipients simply have more money, without accounting overhead.

If you are a nonprofit which works with international companies (we for example worked with them to organise events for students), this can be quite tricky to explain, since the concept seems a bit alien to their accountants, who are used to sponsorship deals or simple licences like op described

Thanks, that is a very interesting insight. We'll see what we can do with it...

Can anyone explain why this would not work:

1. Modify the license for django to stipulate that companies using the software must display a highly visible 'powered by the free version of Django' badge on their website. 2. Allow that notice to be removed for x per year.

I get that it's a complex legal and accounting question and I must be missing something.

> 1. Modify the license for django to stipulate that companies using the software must display a highly visible 'powered by the free version of Django' badge on their website. 2. Allow that notice to be removed for x per year.

People would just stop using Django for new projects. That's a very silly requirement that would turn a lot of people away. That's basically a freemium model. Anyway if it's OSS I can just fork the project and do what I want with it. If I can't, it's not OSS.

Surely you can protect against a fork - other licenses do.

you however, cannot retroactively relicense already released into the wild code.

also such no-fork licenses are definitely not Open Source.

For one thing, you lose GPL compatibility.

this makes it lose the commonly agreed upon properties of "Open Source/Free Software", and even if you could get all the major contributors to agree to a license change, the insuing dramastorm would almost certainly lead to a fork.

(this was very similar to the cause of the xfree86 -> xorg fork)

fair enough, but then patio11 should donate out of his own pocket.

That's what I did.

Why? Sure, patio11 himself benefits from the software, indirectly, when he pays himself salary. And the software he uses, in part, helps ensure that salary. However, the company "needs" the software more. If the project shuttered tomorrow, that would be an existential threat to Appointment Reminder (patio11's business) but wouldn't be such a threat to Patrick.

There is also the tax benefit. A 1000 dollar donation (or software license purchase) would only be ~700 assuming that Patrick still wanted to make the same donation with the same effect on his personal spending power.

sometimes you need to do the right thing, not the optimal thing.

That sounds like utter baloney.