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

[Peter Batty]

I have the same question as Jachym - could someone provide a summary with
more information on what we have been doing with our sponsorship program?
During my year on the board I don't recall much if any discussion, or
activity on this that I've been aware of. If someone could explain a bit
more background and history on the program that would be helpful to me, and
I suspect to some others.

I'd also agree with Cameron's observation that *perhaps* some of this
discussion may tie in with the discussions on how we relate to Eclipse
LocationTech. It could be that if we decide not to set up a for profit
subsidiary at this time, maybe there is some way to collaborate with
Eclipse on sponsorship programs. I'm sure there will be some strong views
on that and I'm not advocating for or against it, just saying that I think
it may be worth thinking about as we consider various options here. Would
there be a way we could designate an "OSGeo sponsorship program" but have
Eclipse run the finances of that for us? Or is that giving up too much that
we want to "own"? Or on the other hand is it too much overhead to set up
and manage a for profit subsidiary, when we have very little focus on
fund-raising or appetite for it during the time I've been on the board.

These are very fundamental questions about what we want OSGeo to be in the
future, and I think it's quite hard to make progress on these (and
especially hard to reach conclusions) via email or IRC. Where do we stand
on having a face to face board meeting, which is something we said a while
ago we would organize once the new board was in place? It seems to me as
though a face to face meeting of most of us at least might be the best way
to try to reach some conclusions, if we can get together reasonably soon.


On Tue, Nov 13, 2012 at 1:14 AM, Jachym Cepicky <jachym.cepicky at gmail.com>wrote:

> 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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