[Board] Questions from IRS vs our 501(c)(3) status

[Jachym Cepicky]

Daniel,

thank you very much for taking care of this. The explanation you
provided seems to be quite clear even to me (European, with as much as
no-tax law knowledge).

One question from my side: how active as or is at the moment our project
sponsorship program?

Thanks

Jachym

Dne 9.11.2012 05:51, Daniel Morissette napsal(a):
> Hi Board,
> 
> I spoke to our attorney last week and got some answers to Frank's
> questions below which I also had:
> 
> 
> On 12-10-30 1:23 PM, Frank Warmerdam wrote:
>>
>> It would be helpful to have some sense of:
>>   - the cost/complexity of setting up a "for profit" subsiduary.
> 
> The cost of setting up a corporation is low. It is the accounting and
> whatever professional support we use in managing it that is the main
> cost (expect 5k$ to 10k$ per year?). My advice for the future will be to
> use a book keeper and accountant to manage OSGeo stuff instead of trying
> to do things ourselves as we have in the past.
> 
> I know we've discussed and agreed to this before, but the problem is
> that being canadian I do not know any book keeper and CPA that knows the
> US law (I can point you at several canadian ones though), and the quote
> we got earlier this year from an organization specialising in this kind
> of admin services was way too high. More research will be required on
> that front.
> 
> 
>>   - the practicality and implications of us opting instead of 501(c)6
>> status.
> 
> Sounds like c6 is not an option for us either. And anyway it seems that
> our type of org would not be a good fit for a c6 which is for "Business
> Leagues, Chambers of Commerce, Real Estate Boards, etc." i.e. a group of
> corporations working on a common goal which is NOT providing a direct
> business advantage to any of the members. Our members are not businesses
> so that solves the question.
> 
> The issue is not one of c3 vs c6, it's about being a non profit of any
> category. Non profits (c3 or c6) are simply not allowed to engage in
> activities that would compete with taxable corporations. Those taxable
> corporations (e.g. proprietary software vendors) are complaining to the
> government that open source foundations with a c3 status compete with
> them with an unfair advantage... that's the root of the problem.
> 
> It seems that our only option if we want to maintain the project
> sponsorship program is to move it to a taxable subsidiary (for profit
> corporation) which would be 100% owned by the 501c3 foundation. It could
> even return all of its profits (if it makes any) as a donation to the c3
> foundation.
> 
> With respect to the FOSS4G, my interpretation is that we could possibly
> keep FOSS4G inside the c3 foundation if we treat the booth and
> advertizing revenues (a small subset of the FOSS4G sponsorship amounts)
> as "unrelated business income" (UBI). There is a cap of max 15% of your
> total revenues/donations as a c3 that can come from UBI. I also believe
> that you need to pay taxes on UBI.
> 
> e.g. on a 5k$ sponsorship which includes a booth and a 1/4 page ad, we
> would treat e.g. 500$ for the booth and 500$ for the ad as UBI, and the
> remaining 4000$ as a donation. It would actually be even better to avoid
> the ads and just include "thank you" notes in our program and
> banners/slides. That would leave only the booth revenues to deal with as
> UBI.
> 
> 
>>   - the tax implications for us of failing to achieve any sort of
>> 501(c)x status. (ie. will we have a big back tax bill)
>>
> 
> I got some hints but no clear answer on this.
> 
> 
> 
> So the question we need to ask ourselves now is:
> 
> "Do we want to maintain the project sponsorship program and setup a
> taxable subsidiary for it, or do we drop the project sponsorship program
> completely?"
> 
> 
> I think the taxable subsidiary is manageable, but to justify it, we'd
> need to put more efforts in the project sponsorship program since at
> this time it is mostly dormant. (OpenLayers and GRASS are interested but
> I've kept them on hold, and GDAL is... well, quiet)
> 
> 

-- 
Jachym Cepicky
Help Service - Remote Sensing s.r.o.
jachym.cepicky at gmail.com
HS-RS: jachym at hsrs.cz http://bnhelp.cz
http://les-ejk.cz

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