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From: "William L. Thomson Jr." <wlt@...>
Subject: Re: Tax return and accounting discrepancies
Date: Wed, 23 Mar 2011 20:21:30 -0400
On Wed, 2011-03-23 at 18:35 -0400, Rich Freeman wrote:
>
> Well, neither the IRS nor the state of New Mexico is posting on this
> mailing list.  Clearly from the responses of others there is in fact a
> controversy over whether a problem exists, and perhaps over the
> details of the requirements.

Yes and only facts will prove one way or another.

> Ok, so priority 1 has to be that all activity going forward is clearly
> documented.

The financial accountability aspect is mentioned in the by laws.

Section 6.2 Duties
#6
"...The Treasurer shall have custody of all corporate funds and
financial records, shall keep full and accurate accounts of receipts and
disbursements and render accounts thereof at the annual meetings of
members..."
http://www.gentoo.org/foundation/en/BylawsAdopted.xml#doc_chap6

> If there was some error or mess in the past, then by all means we
> should look into it.  However, we may or may not ever be able to
> resolve it, depending on the state of the records.  The current (and
> to be elected) board needs to held accountable for the things they did
> - and only in part for their ability to clean up something that
> happened in the past.

I do not hold any future board accountable for mistakes of the past. But
I do look to any current board to correct any mistakes of the past. Such
that they do not exist in the present.

> Sure, the issues of the past, if uncorrected, may cost us something.
> That alone doesn't mean that they can be corrected.

That is true, and if for some reason Gentoo has failed to file with the
IRS for three years or more. There is not much working around that.
Though theres seems to be a process to regain exempt status. Might
entail filing for a new entity, EIN, etc and going that route.

> I'm not suggesting that we shouldn't try to find out more - only that
> this may or may not end up being possible, and so it is what it is.

I am simply trying to find out more. Thus my first post started as
questions. If the paperwork had been filed. Links to those documents
would have sufficed as a response, and nothing further from me on the
matter.

> So, I'll agree that any reports required by law must be filed.

Not much to contest there :)

> Whether a CPA is required depends on the law and the complexity of the
> task.  I don't doubt that the cost is significant - maybe not
> thousands of dollars, but they aren't going to do it for $50 unless it
> is a donation. 

The ongoing cost should be very minor, few hundred at best.

> Also, in my experience accountants only work with what
> you give them - if your records aren't useful then they can't generate
> reports out of nothing.  If your records are good enough to report on,
> then there is probably a decent chance we could do the reports
> ourselves, and rely on CPAs and attorneys only when there are issues
> in controversy, or for auditing.

Correct, they cannot make up stuff or fudge the numbers. They can only
go on what we provide them. Also with the stuff being rather basic, and
such low revenue annually. Its very likely it could be done in house.
Though can't hurt to have reviewed by a professional. There are many
ways to go about it.

> So, it sounds like there is debate over whether a problem even exists.
>  I was listing possible issues, and your declaration that a problem
> exists obviously does not on its own make it so.

Yes and all it takes is some proof the annual filings have been done. It
would quickly end any debate or question over the matter.

> I think you misunderstood my point.  You don't need to document
> something that you didn't do (sure, you might have to issue a no-op
> statement, but that's it).  So, we should focus first on compliance,
> and second on activity.  If we keep the reporting ahead of the
> activity then we will always be compliant.

Yes, we were misunderstanding each other happens. Right now things seem
to be a bit reversed. Some credit to those who donated, but not sure on
the compliance aspect. Do not have any documents or facts to go on
there.

> Regarding my qualifications - I never claimed to be a CPA, and neither
> are most directors in public companies (at least from what I've seen).
>  The role of a director is primarily one of oversight normally,
> although the reality for Gentoo is that we need to get our hands
> dirty.  I certainly have no objections to this.

Your cool, no worries. I was just making a point there, using you as an
example, sorry about that. You are correct though, you are being elected
to oversight. However since the structure is partial, any board member
or at least the first 4 tend to serve as officers as well. That is not a
role of oversight, but action.

> From what I've seen posted by the trustees in this thread we really
> don't have a serious issue to worry about here.

That is based on a single post and comments from one trustee. Who is not
the treasurer, so not sure about the accuracy of that statement. Not to
mention no documents or evidence to support the comments. Just a don't
worry its handled, and thats not good enough for me, sorry.

> Obviously if elected I will have full access to all material
> information and would confirm that this is in fact the case.  If it
> isn't then we'll work TOGETHER to fix it.  That last bit is actually
> pretty important - what's the point of Gentoo if we're throwing stones
> at each other?

I agree, and my intention then was to work with others. Now I am just
concerned it gets done. I am not willing to toss my hat into the ring,
because it was sent on fire last time.

That being said part of being a team is delegation and splitting up
tasks. When someone has to start doing tasks that another should be
doing, it starts to become problematic. More so when others get
involved, and just stand in the way of progress.

At times we all think we are helping each other out. But that is not
always the case, and at times we just get in others way.

> Again, I think you misunderstood my point.  I wasn't suggesting that
> we shouldn't accept money.  My point was that if any particular
> transaction is unusually onerous from a reporting or legal standpoint,
> then we should consider that as part of the cost/benefit balance.

I have made the exact same argument to devrel about problems with
developers. Is it really worth involving every developer, taking action,
etc. Or just letting some matters go, weighing out the cost vs benefit
of taking action or inaction.

> If somebody wants to set up a trust to benefit Gentoo in the amount of
> $47, and that trust takes Gentoo 75 pages of accounting over the next
> 10 years to work out the reporting, then we should probably just ask
> them to write us a check or give it to somebody who can handle that.
> On the other hand, if that trust costs us writing the number $47 in
> line 8 of form ABC then we should take it.

Sure, but if Gentoo gets to a point of starting to fund its own
development. Who knows how far that $47 might go and might be worth the
time to deal with the accounting aspect. Though in reality there should
not be much time per any donation, large or small.

For some contributions like from PayPal that can likely be programmed ;)


> Again, priority 1 is that documentation for current activities is
> good.

Also publishing any filings, might be what you meant. Its not really
documenting current activities, but providing copies to the foundation
members and general public. Now if they document things they do, great.

> Priority 2 is that we catch up on old messes.  You can't clean
> up a mess if you're making it worse every day.

Yes, and that I believe has been the state of things for some time. I
would love to be proven wrong, I really would :)

> And the current trustees seem to claim that all is in order.

A trustee, Roy's response was not saying yes the house is in order. Nor
any comment thus far from the treasurer, who has the duty of dealing
with the financial accounting, filings, etc.

> Well, I was trying to be constructive.  If you care about Gentoo, and
> you're going to point out problems, then it doesn't hurt to suggest
> options for solutions.  I won't be hurt if they aren't ultimately
> implemented.

Sure, I didn't meant to be negative or dismissive there. But I believe
Gentoo has resources already in place to provide the information
directly. It already provides meeting minutes, some quarterly
accounting, etc.

> If things are actually under control then perhaps the status quo is
> adequate.

Well the status quo all around in Gentoo needs to change, but thats some
what another story and larger matter :)

> Certainly I'd support increased transparency, like a webpage with
> periodic statements.

That exists, but its really not enough. Also doesn't seem to be any
annual stuff, just quarterly.

> The checkbook register need not be public -mainly because it probably
> contains details that might be personal/etc in nature.

I agree, but just about any transaction, current balance, etc can be
made public. Pretty sure thats the case now with the quarterly reports.
Though no real way to ensure they are accurate.

Not sure if the board are reviewing those things, or there are any
checks and balances in place. Like if anyone is keeping an eye out on
the treasurers activities, to make sure they don't make a mistake or
otherwise.

> > (Paraphrased)
> > You had commented on losing non-profit status/etc.
> 
> I don't know that you specifically said anything incorrect, but there
> are a lot of common misconceptions out there around non-profit status
> and what that means as far as the IRS goes.

Yes, and I have been providing facts, links to the IRS site, as I did
back in 2008. But for some that is still not enough :)

> The IRS taxes corporations (that's what we are, legally) and
> businesses in general based on PROFIT.  If you don't make a profit,
> then you don't owe taxes, period.  You don't need any particular
> status to benefit from this.

You still have annual filing with the IRS. How do they know you are
pretending to be a non profit entity, operating as a for profit entity
just not paying taxes. The only way for the IRS to know otherwise is by
an entity doing annual filings with them.

"Small tax-exempt organizations whose annual gross receipts are normally
$25,000 or less ($50,000 for tax years ending on or after December 31,
2010) may be required to electronically submit Form 990-N, also known as
the e-Postcard, unless they choose to file a complete Form 990 or Form
990-EZ."
http://www.irs.gov/charities/article/0,,id=169250,00.html

Which if the Foundation has ever filed any form. Its not hard to make
that available in PDF format or otherwise on g.o ;)

> 501(c)3 status is about allowing contributors to claim a tax deduction
> in the US on their donations.

I am very aware of that status. 

> You can write a check to Microsoft right now, and there are no issues
> for Microsoft receiving that money (they just have to put it in their
> revenue, and pay taxes if not offset by a loss).  However, you can't
> deduct that from your income for tax purposes.  If you write that
> check to the American Red Cross you can, because they are 501(c)3.

Yes, and if an entity that has applied for 501c3, fails the audit that
comes after the 5th year. The status is revoked retroactively, so anyone
who contributed in the past and wrote that off as charitable, will in
theory have to change that to non-charitable.

I can't find the document on the IRS site, so this will have to suffice,
but I know it exists.
http://www.ewildagain.org/nonprofit/501c3.htm#audit

It came up before back in 2008. Also I came across a document for
FreeBSD Foundation showing they made it pass the 5 year period.

"December 31st of this year will mark the end of the FreeBSD
Foundation's probationary period as a 501(c)3.  The IRS requires all
non-profit public charities to prove, at the five year mark, that they
have met the "public support test" or be classified as a private
foundation. "
http://www.freebsdfoundation.org/press/20041221-newsletter.shtml

> In summary:
> 
> Bottom line is that I'm all for transparency.  However, I'm not going
> to accuse the current trustees of not doing their job unless I have
> evidence that this is actually the case.

Well actually thats reversed, we should not assume they are doing their
job, without providing any evidence. If evidence is provided from the
other end its not good.

> Sure, I'd love to see more transparency, and we can work
> constructively to have that.  However, if our interests REALLY are the
> welfare of Gentoo we can do that without making accusations.

It does not take long or much effort to disprove any accusations if they
have no merit. The fact that no document has been provided thus far,
makes me only doubt further what others have said. There is nothing to
back up their comments.

> How about a simple "Hey, I was curious if Gentoo's financial
> statements are posted anywhere public.  Can you point them out, or is
> there some way we can work towards making them public?"  This is much
> more constructive than starting with "I know you're hiding something -
> prove that you aren't!"

Did you read my first post? Granted it should have been phrased more as
a question. But if either returns, forms, or anything had been filed. It
really would not take much to reply to my post with links. Even if the
stuff needed to be uploaded. Could just reply, give us some time and we
will provide you links to the documents.

That a thread has gone on, and the one trustee to comment thus far did
it with a lengthy reply, and no comment from treasurer. Again it only
helps to reinforce my stance of questioning that any of this has been
done at all.

> If you're looking for somebody who is going to antagonize anybody
> trying to help out until they all quit then by all means don't elect
> me to the trustees.

Funny, if you read my manifesto, I told people not to vote for me. But
it was based around time, not antagonizing people. However be forewarned
as a trustee, that is exactly what might happen to you. I was most
definitely antagonized quite a bit. Which lead to my behavior becoming
unruly before. Really like to see how others react or would have reacted
in similar circumstances.

> I'm all for compliance and am willing to pitch in to help out.

Just as I was back in 2008. Question then becomes what happened? Why was
I unable to help out further? :)

> I'm fine with hiring professional help when that makes sense.  What
> I'm not for is stirring the pot just to make people run around.

I did nothing since I left in 2008. Have things gotten any better? Read
this article and tell me if Gentoo is any different now.
http://distrowatch.com/weekly.php?issue=20070312

Also if you look at the nfp stats. I was stirring the pot then. Once I
went away, the list went dead.
http://archives.gentoo.org/stats/gentoo-nfp-per-year.xml

Now if you think about it, is stirring the pot a bad saying or to do? If
your cooking something and you don't stir the pot what happens? Even if
you making reduction sauce, you stir it occasionally :)

People really need not see stirring the pot as a bad thing. The status
quo is not good, and anyone who dislikes the pot being stirred is just
in fear or change or controversy.

But end of the day, if things were being taken care of there wouldn't be
a pot to stir. Someone would be doing that already on an active and
ongoing basis. If I am wrong about all this, no big deal. But if I am
right, and I said nothing and didn't stir the pot. How does that help
Gentoo? Neglect is much more harmful than any pot stirring.

-- 
William L. Thomson Jr.
Obsidian-Studios, Inc.
http://www.obsidian-studios.com



Replies:
Re: Tax return and accounting discrepancies
-- Rich Freeman
References:
Tax return and accounting discrepancies
-- William L. Thomson Jr.
Re: Tax return and accounting discrepancies
-- Rich Freeman
Re: Tax return and accounting discrepancies
-- William L. Thomson Jr.
Re: Tax return and accounting discrepancies
-- Rich Freeman
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