[OSGeo-Board] 501c3 questions (was something else)

[Frank Warmerdam]

Rich Steele wrote:
> I am catching up on old emails.  I wanted to respond to some of the tax
> issues asked on board.osgeo.org.  There's a lot of boring legal stuff in
> here, so go ahead and crack a beer first if you want to read it all.

Rich,

It wasn't nearly as bad as you let on. :-)

> As has been discussed, qualifying as a "public charity" under 501c3
> generally requires broad public support, which means 1/3 of donations
> come from dispersed sources.  Any individual donations are capped at 2%
> of the total.  So, when computing the 1/3 test, the amount by which an
> individual donation exceeds 2% of the total does not go into the
> numerator, but it does go into the denominator.  So, for example, if
> Autodesk donated $150,000, and there were $50,000 in small donations
> from many other sources, the calculation would be:
> 
> Cap:       2% x $200,000 = $4,000 (so only $4,000 of ADSK's $150,000
> goes into the numerator).
>   
> 1/3 Test:  54,000/200,000 = 27%  FAIL :(

Actually, this 2% of our budget helps a lot if we have a fair sized
budget.  If we meet our objective of total sponsorships of $300K (with
150K of that going to "project funds") then we would have an individual
$6K "public support" cap.

For example imagine;

3  platinum (27000 * 3)  =  $81000      6000 *  3 =  18000
12 gold     (9000 * 12)  = $108000      6000 * 12 =  72000
34 silver   (3000 * 34)  = $102000      3000 * 34 = 102000
                             ------                  ------
                            $291000                 $192000

What I read from this, is that if we can get a reasonable diversity
of sponsorship we should have no problem qualifying for the public
support test.

Note, I am assuming that in a steady-state world Autodesk will
be just one of a short list of "platinum" sponsors, though it will
also presumably be contributing a great deal of "in kind" work to
MapGuide, and FDO.  The above funding is fairly optimistic but in
a regular year, even a more modest budget of $200K or $150K should
be able to meet the public support test if we get enough contributors.

 >Frank says:
>> As well 501c3 status may tie our
>> hands in a variety of other regards, such as providing tangible
>> benefits to sponsors in return for contributions.

Rich says:
> Not sure if I'm reading this correctly.  There is no requirement that
> tangible benefits be provided to sponsors in return for contributions.
> Quite the opposite actually.  Tangible benefits as quid pro quos for
> contributions are actually NOT tax deductible to the extent of that
> tangible benefit.  The foundation thus should not provide overt benefits
> to contributors, but rather is generally required to have a charitable
> purpose.  Fortunately, other open source foundations have laid the
> groundwork and the IRS now accepts that offering open source software
> free to the public is a charitable purpose.

I did mean the converse, below.

> If you are asking the converse -- ie., we wouldn't be able to provide
> tangible benefits to sponsors -- the answer is that we could, but the
> contribution from the sponsor *might* be taxable to the foundation as
> "unrelated business income tax" (UBIT).  I would have to look into this
> in more detail if you gave me more details on the types of arrangements
> you would foresee, but the basic rule is that UBIT is designed only to
> ensnare profit-seeking activities not related to organization's exempt
> purposes.  So if a corporation donated cash as a bounty to develop a
> feature to include in the next release of an OSGEO product, that would
> probably be OK.  And simple "sponsorships" are OK under IRS regs if
> there is no substantial return benefit other than recognition of the
> sponsor (logo on the website, etc.)

I was thinking primarily of companies funding specific features which
while put into the public code, are clearly of primary use for one
companies project.

Also, I was wondering what happens if the foundation runs the conference
and is accepting conference fees and tutorial fees.  The attendies are
receiving a tangible benefit.  Is this an issue?

> One primary benefit of 501c3 you may be overlooking is that many other
> private foundation 501c3's and government entities will only donate to
> 501c3's.  So if we think we might be eligible to receive grants from
> other charities or foundations or governments, 501c3 could provide an
> advantage there.

This is something I hadn't originally considered very significant, but
I think I may be missing something.  While I wouldn't want to depend
on it too heavily, I think there may be potential for support from
some NGOs and foundation in the fields of ecology and environmentalism.

Certainly, I have high hopes for some degree of support from governments,
whether directly, or possibly indirectly for research programs.  If
being 501c3 makes that easier, then that is a big bonus.

Also, even in the Chicago meeting there was one "high net worth"
individual in IRC who might be interested in a contribution as long
as we are 501c3.

Based on your email, I think I am comfortable with 501c3 status.  My
only concern might be having to deal with UBIT on a few things, like
conference income, or sale of "swag" (ie. tee-shirts).

Best regards,
-- 
---------------------------------------+--------------------------------------
I set the clouds in motion - turn up   | Frank Warmerdam, warmerdam at pobox.com
light and sound - activate the windows | http://pobox.com/~warmerdam
and watch the world go round - Rush    | Geospatial Programmer for Rent