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.
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.
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.
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.
While the software itself may be free and open, often the authors of the software provide consulting & professional services around the implementation of the software. If the software in question has a primarily commercial purpose, I can see this conflict of interest confusing authorities.
Open Source is a widely used marketing and product strategy used to gain traction &market share and make substantial capital gains by the owners Github, MongoDB and many other start-ups.
It's not clear to me any of this is "non-profit" by default.
If some of society has benefitted and the organization has not made a profit from those benefits, then I'd say that the non-profit claim is valid and we are all better off for it.
There are tons of people who use MongoDB without paying MongoDB(Tengen) a penny.
Even though I totally understand the IRS concerns, eliminating this benefit creates a disincentive for the commons, and we are all poorer because of it.
I think one of the metrics that could be used here to determine full or partial non-profit status is the community around a piece of software. The active community is a representative, albeit biased/skewed, sample of the entire community using the open source software in question. Polling these unrelated parties (i.e. there is no contractual obligation between them and the software producing entity beyond a commonly accepted open source license) should be sufficient to figure out if an organization should qualify for non-profit status.
"Please explain how the activities of this organization differ from a commercial software development company beside distributing the software for free."
Please explain how the activities of your soup kitchen serving meals to the homeless differ from a commercial restaurant serving meals to the rich and famous of Beverly Hills beside distributing the food for free.
Because the soup kitchen is providing a charitable service and product to a segment of the population that wouldn't otherwise be able to provide for themselves.
Now imagine if there was a "charitable" catering group that accepted donations from large corporations and used it to provide free catering near corporate events. Should they be allowed non-profit status?
The whole argument is that it matters who the end product is going to. There are a number of open source projects that mostly get donations from large corporations who are the main end-users of the software. Should they be non-profit? And there's a whole grey area in between. The IRS seems to be drawing a strong line where the authors of this article think there needs to be more of a grey area.
Personally I don't have a problem with being more liberal with non-profit for FOSS organizations. But it's certainly not as clear cut as your analogy is making it sound.
> Now imagine if there was a "charitable" catering group that accepted donations from large corporations and used it to provide free catering near corporate events. Should they be allowed non-profit status?
Are the open to the general public? Are homeless people not turned away at the door? If yes, then yes, they should be allowed non-profit status.
Just because something is theoretically open to the public, doesn't mean it's accessible or useful to the public. If the catering event is setup outside Google HQ or even in a public park in a rich or rural area it's not like a bunch of homeless people are going to show up.
The same is true for many OSS products. Yes, anyone from the public with an internet connection has access to the software. But what's the point if the software is only really applicable to certain commercial interests?
> But what's the point if the software is only really applicable to certain commercial interests?
Because it's available to all companies with the same commercial interests. OSI approved licenses are all non-discriminatory, so if you are open sourcing the software your business is built on, then the code is useful to not just your own business interests, but every company that shares your business interests, competitors included.
I think that if you're releasing software in such a non-discriminatory manner then it is for the greater good (even if that greater good is only potential) and should be eligible for non-profit status.
It isn't just open source. The whole US non-profit application process is needlessly long and difficult for anyone seeking it, which is generally, you know, the most benevolent people living amoungst us (like, for example, open source software developers). For years, the workaround on the delay has been to partner with a pre-existing non-profit.
In the meantime, if you want to start a for-profit company, why you can pick from one of a half dozen different varieties in any state in the nation by clicking on a few buttons on a website.
The only possible counter-argument to making it easy is worry about fraud. For every other reason, starting a non-profit should be easy, but if fraud's the big one, then for goodness sake, spend some money watching the non-profits.
The government should be, anyway, because most non-profits are doing works for the public good, you know- that stuff that the government used to fund? Maybe it could learn a thing or two? Maybe the government could pro-actively send them funding, instead of them having to wait and wonder whether a grant application will go through?
i wish they apply the same principles to the tax exempt status of churches - as, for example, distribution of entertainment media products for money done by a church has no substantial difference from that done by a [commercial] Hollywood studio.
If you want to read something interesting involving religious groups and avoiding taxes and taking advantage of welfare programs, read up on the Kiryas Joel community.
First company I thought of when reading this was Famo.us. They are creating open source Javascript frameworks, but then want to sell hosting solutions that handle their stack (something along those lines).
Does this mean that if I currently work at a non-profit developing open source software--not our primary goal, just sharing tools we make--that I'm jeopardizing our 501(c)(3) status?
Though I don't know all the details I can see how the IRS could arrive to this conclusion. Otherwise any company could open source their in-house software (no matter in which state it is), then claim tax exemption.
And we'll have a lot of open source software covering huge range of potential corporate needs, possibly saving a lot of money for everyone. Win? Win!
Of course one could specifically craft their software to be unusable by everyone but them, but it sounds like additional work for them with no clear benefit.
The hair that's split is ours (free software) so we care, but we should probably be more concerned about the 5 year wait to get a decision! That is unreasonable to the point of unworkable.
Just eliminate the IRS and income taxes, and this problem goes away. Move most government services, for which there is an actual market, to private for-profit or non-profit organizations, or voluntarily assembled communes or co-ops. Fund the rest of the government apparatus through usage fees where the government service is providing value that someone will pay for.
Does this expose a "free rider" problem? Yes. Is that important? No.
i'm sure that this will cause no amount of poor people to no longer have enough money for food, water, or shelter, much less health care, education, or other social contract goods, because enough non-profits will spring up to fill the gap and richer people will just be begging to fund them with all their freed up capital from no longer having to pay taxes. right? right? man this just sounds so pleasant a society to live in, i can't wait til we get there.
i'm sure that this will cause no amount of poor people to no longer have enough money for food, water, or shelter, much less health care, education, or other social contract goods, because enough non-profits will spring up to fill the gap and richer people will just be begging to fund them with all their freed up capital from no longer having to pay taxes. right?
Who knows? More likely it would lead to a lot less poor people, and much lower prices for health care, education, etc., so there would be a much smaller problem of poor people lacking such essentials to begin with.
Whatever you think about that, it's clear that the present system certainly hasn't done a very good job of eliminating poverty. I would think it's time to try an alternative.
In either case, it would be a Good Thing to have less institutionalized use of force in our society.
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.