IRS policy that targeted political groups also aimed at open source projects

Aurich Lawson

The IRS denied a proposal to grant 501(c)(3) status to Yorba, a nonprofit organization that develops open source software for the Linux desktop. In a blog post yesterday, Yorba spokesperson Jim Nelson disclosed the full text of the IRS rejection letter. He fears that IRS policy has evolved to broadly preclude nonprofit open source software developers from obtaining 501(c)(3) tax exemptions.

In the United States, the 501(c)(3) classification is typically granted to a certain class of nonprofit organizations that are engaged in activity that can be considered charitable, religious, scientific, literary, or educational. Many prominent open source software organizations hold 501(c)(3) status, including the Apache Foundation, the GNOME Foundation, the Mozilla Foundation, the Free Software Foundation, and the Wikimedia Foundation.

The IRS was at the center of a major controversy last year following the release of internal memosrevealing that the agency systematically applied a disproportionately aggressive standard of review to organizations that matched certain keywords. Targeted organizations faced greater difficulty obtaining 501(c)(3) status. Interest in the scandal has largely centered on the question of whether prominent political groups were unfairly treated, but the same internal IRS memos that defined the policy also oddly singled out open source software.

IRS personnel responsible for reviewing 501(c)(3) applications were instructed to elevate cases involving open source software to their supervisors, resulting in extensive delays in the review process and frequent rejections. In the wake of the controversy, a New York Times report highlighted how nonprofit organizations that develop open source software may, in fact, receive harsher treatment than many of the other targeted categories.

Luis Villa, a lawyer and well-known open source community member who currently serves as deputy general counsel at the Wikimedia Foundation, told the Timesabout two nonprofit open source software organizations that were denied tax-exempt status because their use of a targeted keyword triggered a harsh response from the agency.

As soon as you say the words open source, like other organizations that use Tea Party or Occupy, it gets you red-flagged, he told the Times. None of the groups have been able to find the magic words to get over the hurdle.

In theory, it might make sense for the IRS to closely review applications from organizations that develop open source software in order to make sure that they arent actually for-profit companies that sell commercial support or monetize their software with other services. If that werethe standard of review, there would be no cause for concern. Unfortunately, it looks like the IRS is applying a much more dubious standard.

The Yorba Foundation was originally founded by former Google employees who wanted to give back to the open source software community. The organization makes open source software applications for the Linux desktop, including a photo management application called Shotwell and a mail client called Geary.

Yorba develops its applications completely in the open, with community participation. The software is distributed under the terms of the relatively permissive LGPL. Yorba doesnt sell any services or monetize its software; it relies largely on donations in order to fund its operations.

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IRS policy that targeted political groups also aimed at open source projects