Open source projects aren't tax scams

IRS is eyeing open source projects and Tea Party groups as possible tax scams, raising a real question: Do open source foundations need nonprofit status?

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Kuhn's view -- that there are both good and bad open source nonprofits and the IRS is targeting all rather than just some -- seems the most common outlook among the leaders I contacted. One solution suggested to me is for a panel of recognized open source community leaders to help the IRS distinguish between the character of new projects, perhaps hosted at the Open Source Initiative.

This has all assumed that "foundation" has to mean "tax-authority-approved nonprofit entity." But do they actually need to be nonprofits? Luis Villa, deputy general counsel to the Wikimedia Foundation and a fellow director at OSI, told me:

Being a registered nonprofit is a strong signal to American donors that goes beyond mere tax breaks. For individuals, it is a strong signal that the organization has a particular mission and vision.

Bradley Kuhn told me:

Remember that donations to 501(c)(3)'s deductible by citizens on their income taxes. Thus, having a 501(c)(3) status is actually a funny way of getting a government grant, in that your donors are given a government incentive to support you.

So being a nonprofit is a badge of pride that shows the IRS thinks your work is in the public benefit. But is the tax break really needed? Would donors really stop supporting open source projects if they didn't get a tax break? International donors certainly give without one; would American donors stop? I don't think they would. The people involved in a community give because they are committed to the project or because they are grateful for its work. While there might be a small dip, I doubt all funds would dry up without a tax break; indeed, I was told that donors to 501(c)(6) foundations often don't get one anyway.

There's no doubt the targeting by the IRS -- especially its uncertainty and opacity -- is an annoyance to and a drain on nonprofits. Kuhn told me:

We work hard to ensure beyond a shadow of a doubt that we've followed the spirit and letter of every possible IRS rule, but it's admittedly extra work for that level of perfection. I wonder sometimes if the IRS realizes they've caused that sort of staffing consequence for orgs like ours.

Maybe the answer is for open source foundations to get out of the nonprofit world. Tax breaks are fine, but they aren't the primary goal of open source foundations. What matters to their communities is that they have transparent, equal governance that allows everyone to contribute to and benefit from the project without obstruction. The IRS does not warrant that; it's a matter instead of community scrutiny. Maybe this newly publicized IRS behavior is an opportunity for us to refocus open source communities on what really matters to them -- open, accountable community governance -- and perhaps even do without nonprofit status altogether, at least until the IRS has reviewed its processes and gained a better understanding of the true nature of open source.

What if you really do need nonprofit status? Perhaps instead of trying to start your own nonprofit, you should join an existing one. There will be a parade of possible candidates in a session Bradley Kuhn is running at OSCON in Portland, Ore., on July 25. If after all this you really believe you should start a new open source organization, please come to the "Community Foundations 101" tutorial I am running at OSCON on July 23, when a distinguished group of leaders from the FLOSS Foundations List will share their experience and insight with you.

After that, I doubt you will think there is any connection at all between open source projects and the Tea Party.

This article, "Open source projects aren't tax scams," was originally published at Read more of the Open Sources blog and follow the latest developments in open source at For the latest business technology news, follow on Twitter.

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