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

[Cameron Shorter]

Arnulf,
Would you mind copying your blog text into this email thread so that we 
can have it archived with the rest of the thread.

On 13/11/2012 10:22 PM, Seven wrote:
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> Folks,
> my take on this blew up while writing (as usual) so I thought to
> better put it aside in a blog and not clog up this list:
> http://arnulf.us/sevendipity/archives/56-Go-OSGeo,-go!.html
>
> I like the way things are evolving, this is a good Board of Directors.
> Head on.
>
> Cheers,
> Arnulf
>
> Am 2012-11-13 08:14, schrieb 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)
>>>
>>>
>>
>>
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>>
>
> - -- 
> http://arnulf.us
> Exploring Space, Time and Mind
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Cameron Shorter
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