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Comment by jedberg | Hacker News Reader

The problem here is that it could create a huge loophole. I'd love to be able to write off my donations to open source groups, but so would big companies.

Imagine a situation where a company that develops their software as open source, like reddit for example, setting up a 503(c) and putting all the developers and all the reddit gold revenue into the 503(c), thereby getting a massive write-off for the "donations" and not having to show profit on reddit gold.

Or worse, someone like IBM putting all their consultants into a 503(c) and taking all their consulting revenue as donations.

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And you know what:

That would be absolutely fine.

It would create a huge incentive for companies to develop at least parts of their software as open source. Think of how much reinventions of the wheel we could avoid if run of the mill components for companies would be in the open.

The IBM case is unrealistic because IBM would still need to make profits for it's shareholders. If IBM was to transform into a huge non for profit that uses consultants' fees to develop open source software (think of open source Watson), That would definitely a net plus for society that would outweigh the loss of double dutch diminished corporate taxes by several orders of magnitude.

>It would create a huge incentive for companies to develop at least parts of their software as open source. Think of how much reinventions of the wheel we could avoid if run of the mill components for companies would be in the open.

one can also imagine that the "open-source non-profit IBM" would have much more troubles trying to enforce its patents thus resulting in even more open innovation and bigger benefit for the society.

I agree with you. Perhaps the IRS could have guidelines and a list of acceptable licenses to use, so that IBM won't come up with their own open-source-but-not-really license.

Edit: hah, I wanted to reply to parent, but must have misclicked. The comment applies here too, though :)

How would it be open source with patent restrictions? I guess they could write their own false foss license that gives them an excemption on it, but it would not be gpl compatible.

You are assuming that the patent-holding organization is the same as the open-sourcing organization; they could be legally separate and controlled by the parent corporation.

In this case; you would be worried about software that was widely used and had both infringing and non-infringing uses. Especially if the patent-holding org waited for several years before they started enforcing.

The software license and patent grants are orthogonal; and while it's not a good look for an organization to give with one hand and take with the other it's certainly a legally plausible strategy.

IANAL, but I would imagine that in such a situation you may be able to get the case thrown own because you could demonstrate that the licensing organization and the patent-holding organization are related and that the license was not offered in good faith.

Actually you wouldn't be able to show any such thing. The license is a grant of one set of rights ( to use the software, make copies, resell it, incorporate it into products, etc. ) but the Patents would be the enforcement of another set of rights ( to prevent infringement of the protected idea ) the two sets of rights are orthogonal, and although you might have rights to use the software from a copyright licensing perspective; doing so might be an infringement on their patent rights.

And those two sets of rights need not inhere in the same organization. Remember when Microsoft was threatening to use it's patent portfolio against any company that used linux...?

1. "GPL-Compatible" is not a requirement of a license to be open source. Consider the BSD 4-clause license[1]. It's not GPL-Compatible because of the "...you're not allowed to use <name> to endorse/advertise..." clause. Would you say that such a clause makes the license "not open source?"

2. I would say that GPLv2 is still considered open source by even the FSF, but it did not restrict software from being patent-encumbered. This was one of the major "loopholes" that the GPLv3 license was meant to close.

your "considered open source even by the FSF" reference is misleading. The FSF acknowledges that even the BSD license and most other totally permissive licenses are all Free Software (but the FSF doesn't say anything is "open source" as they don't use that term).

Yes, indeed GPLv3 (or AGPLv3 or LGPLv3) is the best overall license for protecting freedoms and closing part of the patent concerns.

My intention wasn't meant to be misleading. I was under the impression that the FSF (& RMS) didn't consider even the BSD licenses to be Free Software because it was possible for proprietary software to incorporate it without giving back. If the FSF does consider the totally permissive licenses to be Free Software, I see that as a good thing. :)

The FSF considers any software that respects "the Four Freedoms" (freedom to run for any purpose, freedom to study and modify, freedom to redistribute, and freedom to redistribute your changes) to be "Free Software". None of the freedoms in question require copyleft. Copyleft is a strategic choice to preserve these freedoms and make it easier to build software that does respect them compared to software that does not.

while IANAL, i think open source can potentially be with patent restrictions formally stated. The issue i think would be to enforce these restrictions in court, specifically to show damages from patent violation - if you're a non-commercial non-profit open source software organization what damage you can show if another open source non-commercial organization violate your patent ?

As another commenter mentioned the patent holder may be commercial parent organization who granted the patent rights to the open-source non-commercial "daughter", yet even in this case i think [or may be just hope :) ] that they would have tougher time in court trying to show the damage caused by the patent violation by another open-source.

Any business expense on developing software for your business is 100% deductible already. Channeling it through a charitable organization would just add complexity, not save any money in taxes.

Also, if the arrangement did create some tax savings, your profits would now be stuck in a non-for-profit organization which is probably not what you wanted.

> someone like IBM putting all their consultants into a 503(c) and taking all their consulting revenue as donations.

If you provide goods and services in exchange for a charitable donation, the value of these must be subtracted from the value of the donations, negating any benefits from that arrangement.

While there may be something to your concern, the example you give confuses the idea of how taxes work for companies.

Reddit is already getting a "massive write-off" for its developers salaries. It's called a payroll expense and it's directly deducted from any income the corporation makes before calculating it's profit.

Formula: Reddit's revenue - all of its expense (including payroll) = profit that it has to pay taxes on.

In that same way, corporations that are paying IBM for their consulting services already deduct those payments from their revenue. The payment doesn't need to be a donation. It's a legitimate business expense.

The developers are already a write off, but they wouldn't have to count the reddit gold "donations" as income.

But then they couldn't actually give the profits to the owners/shareholders, right?

Officially? No

Unofficially? Look how many "charities" pay their founders/presidents 6-figure salaries.

But then, the founders / presidents would need to pay income-tax on their salaries. The only benefit in this arrangement is that sops given to individuals might be higher than that to companies.

It stops it being taxed twice - once as corporate income and once as personal income.

What are you talking about? Six-figure salaries would never be taxed as corporate income in the first place. Compensation up to a million is a straight-up deduction, no questions asked. You don't need to be a tax-exempt entity to avoid corporate income tax on them.

Look at how many companies pay their founders/presidents 8-figure salaries. What's the problem?

relevant: http://www.cnet.com/news/mozilla-gets-lucky-settles-irs-audi...

That sounds fine, as long as developers in the 503(c) aren't making proprietary software.

Imagine if your typical software company went this route instead of pursuing software patents. Two birds with one stone!

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