Comment by codezero | Hacker News Reader

Comment by codezero | Hacker News Reader

It sounds like the gist is that they were rejected because the code they create might be used by entities that are not nonprofits/charitable.

One one hand, this seems crazy if the software created is given -- for a bad metaphor: imagine a charity being unable to feed people because those people may use the energy they get from that food to do non-charitable works.

Separately, and to play devil's advocate, I can kind of see the logic here: it creates a loophole through which re-usable work that is funded under tax exempt status can then be used by anyone, so you could imagine some org donating some money to get some particular work done, then getting it and using it without having to have paid tax on the equivalent work that would have been done if they paid for it. Going back to the food metaphor, it might be like a charity offering free food to anyone, rather than just to those who have a particular need. I think that such a charity might run into a similar rejection, but I don't know.

Like I said, I think it sounds crazy, but hopefully this draws more interested parties into the discussion.

The NFL is considered a non-profit organization by the IRS, yet all of the teams which associate with its branding reap enormous profits.

How should all organizations which happen to open-source code automatically be "for profit" just because some other companies might use such code for commercial purposes? The two examples are very similar but the NFL is non-profit. If the precedent is set, the damage to the FLOSS movement would be real and lasting.

To be clear, there are significant differences with the legal classifications of various non-profits. 501(c)(3) is much different from 501(c)(6) (the NFL is (6)) I am not a lawyer so I don't know what the differences are, but it's possible/likely that if someone was going for a different kind of non-profit the rules would change dramatically, so they can't quite be compared apples to apples.

see: https://en.wikipedia.org/wiki/501(c)

So I was curious about this and looked up some more information on it (the NFL tax exemption).

Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

http://sportsfans.org/2012/03/why-is-the-national-football-l...

One more needle to add to the haystack of bull shit from my government I put up with.

> The NFL is considered a non-profit organization by the IRS, yet all of the teams which associate with its branding reap enormous profits.

The NFL is a 501(c)(6) trade association, so that's expected. Its not a 501(c)(3) charity.

The rules are completely different.

The NFL is not a great example as they have a specific exemption that Congress wrote into the law just for them.

The NFL is, IIRC, a fairly bog-standard 501(c)(6). Are you think of an anti-trust exemption rather than a nonprofit status exemption? I know that MLB has the former, and I think the NFL does as well.

501(c)(6) is specifically written for specific exemptions.

http://www.irs.gov/pub/irs-tege/eotopick03.pdf

"IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual."

Of specific interest is the "Statutory History" section on page four - a history of private organizations asking for exemptions.

> How should all organizations which happen to open-source code automatically be "for profit"

They aren't. See, inter alia, the Apache Software Foundation. "BOLO" doesn't mean "blanket prohibition".

>>> so you could imagine some org donating some money to get some particular work done, then getting it and using it without having to have paid tax on the equivalent work that would have been done if they paid for it

If they donate the result to be used by everyone, not only this org - what's wrong with that? If a company builds a public park and this company's employees, along with others, can visit it - is it bad? If a company builds a hospital which accepts, among others, this company's employees - is it evil?

I am not justifying anything but I think that the target audience of the tax-free work is important to the IRS when classifying the organization. Like others have said, they may get exemption with some tweaks, but simply "not being bad" doesn't make it good, if you think of it from the point of view of a loophole that other companies can take advantage of, it's important to the IRS to avoid loopholes like that, it has nothing to do with good or evil, just with money and avoiding taxes :)

Why it is a loophole? I thought giving stuff to the public is the whole point of the nonprofit status, why you're calling it a "loophole"? Yes, of course businesses benefit from it too - they are part of the public, businesses are run by people and serve people, so whatever makes people's lives better helps businesses too. If the government says that it would not tax activities which benefit the public, it is extremely weird to say "unless of course it benefits all the public and not just narrow subset of it". I'd say it makes more sense to encourage activities which benefit everybody, not suppress them. As is it sounds like IRS would be happy to welcome an organization that gives software for free only to people living in New York and unemployed, rather then giving it to everybody. I don't see how it makes any sense - the benefit for the society is clearly larger in the latter case and that's the whole point why nonprofit status exists in the first place!

It isn't inherently a loophole, I never said that, I said from the point of view of the IRS it could open up a loophole, possibly.

Giving to the public isn't the point of nonprofit status, there are lots of different kinds of nonprofits, and the one under discussion here is a very specific kind, and in order to qualify for it, the IRS requires a lot of specific things.

From what I understand, the issue the IRS has is the fact that the recipient of the charity was too broad, and to qualify for 501(c)(3) status, the recipient of the charity should be more targeted.

Think of it this way, I could give away free food all day, but if I'm doing it at the top of a ski resort, it probably doesn't help the kind of people who need free food and my case for being considered a charity may be diminished.

There is nothing to say that companies doing open source can't qualify, many have, and they obviously did so with better lawyers and maybe a more concrete/directed plan as to who would receive the charity they are offering.

The IRS isn't concerned with the benefit to society, that's not what they are regulating, they are regulating the flow of money and exemptions to taxation. Software that is tax free and used by entities which may exploit that are what the IRS is probably considering.

The park could be completely encompassed by company buildings and the hospital could be located on a remote oil rig. Both could, legally, still be accessible to the general public for use as they please, but due to their concrete nature, the general public is either unaware of it or has few means to use it.

Similarly, the software built by the company-funded tax-exempt ‘charity’ could be constructed in such a way that essentially only the funding company can make use of it.

That’s not to say that accepting others in a hospital on an oil rig is ‘evil‘, it might just not be tax-exempt (assuming that an employees-only hospital wouldn’t be tax-exempt).

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