I know that there are many who want to think that the entire tax exempt organization scandal is about politics. And I am not suggesting for a second that politics were not involved. But I've also offered up - and I stand by it - the idea that much of what went on at the Internal Revenue Service (IRS) in the Tax Exempt Organizations division was sheer laziness. Those BOLO ("be on the lookout") lists? The ones which were circulated to alert IRS employees evaluating tax exempt organization applications as to specific phrases that might signal a non-exempt purpose? Sure, they were chock full of words like "tea party" and "patriot." But that wasn't all. They also included "healthcare legislation," "medical marijuana," and "open source software" (2010 redacted BOLO list downloads as a pdf).
Wait... Open source software?
Yes, it seems that the IRS has it out for open source software. The 2010 BOLO list included "open source software" as a significant watch issue, noting "There is no specific guidance at this point. If you see a case, elevate it to your manager."
And that's apparently what happened to the Yorba Foundation which, nearly five years after making application to the IRS for tax-exempt status, received a letter denying their request (downloads as a pdf).
Yorba describes itself on its website as "developers of great Linux desktop software." Their projects include Shotwell photo organizer, Geary email reader, Valencia edit plugin for Vala and gexiv2 GObject wrapper around Exiv2. I'm not going to lie to you, I don't know what that means either. It might help to read the IRS' description of Yorba: "you develop software published under open source compatible licenses that authorize use by any person for any purpose." That's a bit better.
Open source software (OSS) is, at its most simple, computer software that can be used, changed or shared for free. The source code for the software (the programming bit) is also made available to the public which means that users can tweak it or fix flaws and pass those changes along; this is in contrast to proprietary software like
This notion of providing access to software - and perhaps most important, providing the source code for the software - has allowed some organizations to operate as tax-exempt. Those include, as noted by Yorba's own Jim Nelson, the GNOME Foundation, Mozilla Foundation,
Tax exempt organizations can be organized for wide range of purposes. Under section 501(c)(3), the most well known section, tax exempt organizations are defined as:
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
It's a pretty broad brush and offers a lot of room for subjectivity. Enter the tax exempt organization application which, prior to last month, was a whopping 16 pages. With accompanying documentation, including organizational and supporting documents, it's not unusual for fully completed applications to consist of hundreds of pages. The IRS was tasked with the job of sorting through those applications and more or less separating them into three piles: yes, no and maybe.
Yorba's application landed in the maybe pile.
According to Nelson, Yorba applied for tax exempt status in December 2009. In 2010 (yes, the same year as the BOLO lists were circulating), they received two requests for clarification. On May 22, 2014, they were advised that their application had been denied. You can read the denial (downloads as a pdf) to see IRS' 12 pages of awkwardly worded reasoning but the end result is that Yorba's application got moved to the no pile.
Was it the right decision?
I'm not completely sure. I've reached out to Nelson for more information about the initial application (admittedly, I haven't seen it). I have, however, read the denial and while some points make sense, others are downright baffling.
The IRS, for example, implies that there might not be a charitable purpose because Yorba can't prove that the poor and underprivileged derive any direct benefit from their services (hello, Harvard?). Yorba admits that it can't offer up those details. In fact, Yorba can't provide concrete information about much of its end users because offering the freedom to run and share the software necessarily means that it's not registered: there's no neat list of users.
The IRS also reasons that since Yorba's software may be used for any purpose, it's not a charity (hello, Harvard again?). I would argue that the charitable purpose of a tax exempt organization doesn't have to end in a charitable result. An education can produce a profitable venture such as a job, a book deal, or meeting the folks who will one day start a multi-billion dollar social network... Getting the homeless off of the street and into job preparedness classes can end in a new career. The Red Cross can provide relief to owners of vacation rentals and businesses destroyed by natural disasters who then start again. It isn't about the end result, I'd argue, but the path. A charitable organization doesn't have to meet the criteria of never resulting in a profit but rather profit cannot be the primary motivation.
Mainly, however, the IRS seems stuck on the idea of copyright and public works: that the copyright (that is to say, ownership) cannot be a public work as compared to say, a road. The IRS wants to make the point that public works, like roads, aren't privately owned but I think to end the discussion there ignores a crucial concept. The public works component is the greater infrastructure - like the electrical grid or the water supply. Even if those services are fundamentally provided to the public by non-private companies/shareholders, those services are often controlled or delivered by the private sector (think about oil companies, utility companies and the like). If a piece of the chain is touched by a for profit company, it doesn't doom the whole concept of public works as a service.
I do understand the challenge: OSS is not an easy concept to understand and it is not completely without profit motives (for example, OSS development has been promoted by such giants as
I get that there is an underlying concern that the benefits of OSS are restricted to users (um, which would include practically the whole of the internet?) and developers of for profit products (a fair worry). The IRS has had cause to believe that some OSS-related organizations were really just thinly disguised incubators for funding corporate projects. But that's like saying that all hospitals should be flagged because some of them are in business just to make a profit: it's simply not appropriate. Each application should be evaluated on individual merit rather than flagged because it might be associated with a concept the IRS doesn't like (whether it's OSS or the Tea Party). And maybe that's what IRS was trying to do with the BOLO list - make sure that the proper level of scrutiny was given to those questionable organizations - so they took the easy way out and flagged all of them.
Either way (laziness, ramped up scrutiny or both), it shouldn't take nearly five years to find an answer.
Now, of course, you can't help but wonder: if Yorba had applied in 2014 under the new procedures, would their application have been shuffled to the yes pile? I think they might have (that is, in a nutshell, why concerns have been raised about the new application process).
For its part, Yorba has currently no plans to appeal. Fighting the ruling would be, they say, "an arduous legal battle we cannot afford."
As for the IRS, investigations into what exactly happened inside the Tax Exempt Organization department - especially at the leadership level (as, to date, Lerner has failed to testify and her emails have gone missing) - are ongoing. It's clear that the department is still in upheaval (applications for tax exempt organizations submitted after October 2013 are still under review as of now). Congress seems more willing to fight about it than to fix it. Meanwhile, taxpayers and potential tax exempt organizations are more confused about the process than ever. Yorba doesn't fully understand - nor can it easily remedy - its denial, and potential donors have to decide whether the denial makes a difference.
In the end, it's almost ironic that an organization which exists to promotes transparency and openness has been trapped by a government that doesn't.
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