Re: [gentoo-nfp] Questions For Gentoo Foundation Trustee Candidates

[Aaron Bauman]

On Mon, Jul 15, 2019 at 02:09:47AM +0000, Robin H. Johnson wrote:
> On Sun, Jul 14, 2019 at 04:20:49PM -0400, Aaron Bauman wrote:
> > > > > Question 1:
> > > > > - Should the Foundation do voluntary OPTIONAL backfiling to the IRS?
> > > > > Yes, No
> > My personal ethics don't really matter. If the IRS requires the additional 6 to
> > gain exemption then they do.  If not, then they don't.
> >
> > My *personal* experience tells me that they will require the additional 6 years.
> So you'll gamble on it and wait for them to ask.
>

I don't know how this would be considered a "gamble."  Either the IRS does or
doesn't require something.

If the 4 years of filing put us in good standing as far as back-taxes then
great.

If not, we will need to file $X years that the IRS asks for.

The CPA has stated that it is only likely we will need to file the additional 6
years to gain tax-exemption status.

Conversely, if the 4 years "pays our dues" to the IRS then we are much better
off starting a new entity with proper history and books.

> > > > > - Remain a for-profit entity
> > > > "remaining" a for-profit entity is antithetical to the original intent and
> > > > purpose of the foundation. While there were failures of individuals to file the
> > > > appropriate federal tax paperwork to gain tax-exemption status, this does not
> > > > change how we should proceed nor set a precedent for "remaining" a in a
> > > > for-profit status.
> > > It's entirely possible to exist as a legal for-profit entity, but
> > > operate entirely under non-profit principles, with the caveat that
> > > you're being "good" and paying tax even when you could be exempt, and
> > > that any donations you receive are entirely voluntary and the donors
> > > cannot claim charitable contributions for them (I expect somebody might
> > > accuse me of being a socialist with this description).
> > >
> > Why would we do that?
> I gather that it's very uncommon amongst the US business models, but I
> have encountered it elsewhere. It was behind some of the founding
> principles for Certified B Corporations, that I'd summarize as "Do good
> without being forced to do so" by law.
>

I supplied a reference defining what a "business league" is considered by the
IRS. It does not fit our purpose.

> > > Article III of Incorporation:
> > > "The Corporation is organized and at all times shall be operated, on a
> > > non-profit basis ..."
> > >
> > > > The 501c6 idea justs needs to go away.
> > > The charitable donations only really apply for tax residents of the USA.
> > > Very few countries permit cross-border charitable donations like this
> > > (Canada for example permits it only if you earn a US income or the
> > > recipient is certain universities).
> > So, the justification to choose identify as a business league is based on
> > residence of members?  I don't see the logic and it doesn't change that a 501c6
> > does not fit our purpose.
> You propose that we take additional restrictions of what we can do just
> so that we might increase US donations due to them being charitable?
>
> > > For the FY2019 that just closed, as a quick analysis, our paypal gross
> > > donations is approximately USD 15400.00. Of that, at least USD 9000 came
> > > from non-US sources.
> > >
> > > Lobbying is a broad definition: encouraging usage of Gentoo can be
> > > construed as Lobbying.
> > >
> > > At a broader level in IRS definitions:
> > > 501(c)(3)
> > > Operated exclusively for charitable, educational, religious, literary,
> > > or scientific purposes
> > > 501(c)(6)
> > > Operated to promote a common business interest, and to improve business
> > > conditions in the industry
> > >
> > > Is Gentoo Linux a:
> > > - charitable purpose: no
> > > - educational purpose: no
> > Educational, yes. If you want examples then look at the public filings of SPI,
> > SFC, etc.
> > > - religious purpose: no
> > > - literary purpose: no
> > > - scientific purpose: no
> > Scientific, yes. c.f. public filings of said companies above for an example
> What filings are you referring to? Please do also note that each of
> these 'purpose' types have specific definitions to the IRS.
>
> Neither Scientific nor Education appear in the PURPOSE of the SFC's
> bylaws (which are articles of incorporation as well):
> https://sfconservancy.org/docs/conservancy_by-laws.pdf
>

It is not in the by-laws. It is in their public filings.  That is, their IRS
forms.

> The SPI's bylaws only mention Education halfway down their PURPOSE, and
> in an oblique way:
> https://www.spi-inc.org/corporate/by-laws/
> "to provide information and education regarding the proper use of the
> Internet;"
>

Reference their actual filings.  Not by-laws.

> > > - common business interest: YES
> > >
> > No... see [1].
> Promoting the use of Gentoo Linux as a common business interest between
> the members.
>
> The Linux Foundation 501(c)(6) PURPOSE on the other hand:
> https://www.linuxfoundation.org/bylaws/
> "The purposes of this corporation include promoting, protecting, and
> standardizing Linux and open source software."
>
> Gentoo's existing stated PURPOSE in the Articles of Incorporation, for
> reference:
> "The Corporation is organized and at all times shall be operated, on a
> non-profit basis exclusive far the advancement and education and
> promotion of software development in an open environment." (including
> the spelling error).
>

Yes, the LF has a more "business league" like purpose hence the 501c6 standing.
If you look at their public IRS filing you will most likely see they have
defined it as a business league (I have not looked at them yet).

> > > > I am not sure why we would even consider dissolving the foundation with a
> > > > follow-on action of donating the money elsewhere. While I support donations to
> > > > similar non-profits, the money currently held by the foundation was raised under
> > > > the premise of supporting Gentoo.
> > > Raised under that premise is different from being restricted to that
> > > purpose by law. We have no donor-restricted funds as recognized by the
> > > IRS [1]. I can speak canonically on that, as the Treasurer, and required
> > > to keep track of any fund restrictions.
> > You are correct, but my point was that donating those funds outside of Gentoo
> > goes against the purpose of why they were raised. This is not a law
> > interpretation or problem, it is a problem of raising money *for* Gentoo and
> > then donating it elsewhere.
> I'd donate it to an umbrella and place a donor-restriction on it,
> telling them to promote Gentoo things with it ;-).
>

That sounds reasonable.

> >
> > > > The dissolution proposal needs to come from the Trustees and be:
> > > >
> > > > 1. direct with purpose (e.g. we will go under an umbrella)
> > > > 2. a well laid out plan to inform the membership of where
> > > > assets/trademarks/monies will go
> > > >
> > > > Asking the general membership to support a dissolution with multiple endstates
> > > > is not proper or responsible.
> > > The two questions can be reformulated:
> > > - do you support the dissolution of the Foundation
> > >   - NO => fix existing entity
> > >   - YES => see next question
> > > - what should the outcome of the assets be? (new
> > >   nonprofit, umbrella, donation to nonprofit)
> > The electorate needs to decide on fixed actions based on the proposal from the
> > board. Otherwise, we will never reach a decision due to the disparity in the
> > questions.
> We're going to agree to disagree here then. In that case we can hold off
> on the explicit support until we have an absolute plan that will work
> (the result of the ranked choice).
>

I have only started these discussions to hopefully get us to a choice soonest.
As the CPA advised, it would be wise to start *now* on whichever path is chosen
by the board and the electorate.

The paperwork required to transfer assets/trademarks is not fun and will take
quite some time.

> > > The CPA is not a book-keeper. We have retained the CPA for tax
> > > preparation services ONLY.
> > >
> > > We could pay to retain book-keeping services (>$200/month), keep trying
> > > to do it ourselves, or it would be done by the Umbrella.
> > Wait, so the Certified Public Accountant doesn't do book keeping?  Or are you
> > simply trying to state that we only paid them to file tax paperwork?
> >
> > If the latter then great... if the former then you should revisit what a CPA is
> > in the United States.
> Exactly what I said before: "We have retained the CPA for tax
> preparation services ONLY".  My statement before that, "The CPA is not a
> book-keeper" could have been worded in more detail "The CPA is not _our_
> book-keeper."
>

Fair enough.  Thank you for the clarification.

> The quote that the CPA provided, of $1500/year, does not include
> any book-keeping at all. The book-keeping they would provide would not
> be in open formats keeping with our social contract.
>
> The CPA did review the financial statements I prepared, and beyond due
> diligence requests to verify numbers (the trustee email you've seen
> asking for copies of specific bank statements and reconciliation
> records), they are being used to prepare filings.
>
> If the foundation were to retain book-keeping services, I'd want it to
> be kept in open formats per the social contract, and try to find
> somewhere cheaper to do it (possibly excess capacity from the SFC's new
> book-keeper, who is also not a CPA).
>

Unless we find an umbrella who will take us then we need to let go of this whole
"open source" is required to be our accountants idea.

Of course, as alluded, most of the open-source friendly umbrellas will
use open source software.

Our social contract does not dictate that a third party accountant is required
to use open formats in order to provide services to Gentoo. Of course, it is
preferred, but highly unlikely outside of the umbrellas which "specialize" in
open source. c.f. the crazy skillset that SFC was looking for in order to hire
an accountant [1]. It only took them 4 months to find someone. Maybe her hiring
will allow them to take us on!

If they do the accounting and provide PDF files then I would be quite alright
with that.

Please do not misconstrue my statements as anti-open-source ideals. In my
opinion, this was most likely the #1 reason the RFP process failed.

I would rather pay our taxes.

> > I will ping the CPA to find out an estimate for retaining CorpCap for all
> > services.
> They'll probably decline until they see more of the paypal transaction
> data, and even then we aren't going to get something in open formats.
>

I will get them the information they require. I imagine they will want to know
things like: how many transactions per month? are they recurring? etc

[1]: https://sfconservancy.org/news/2019/feb/14/techie-bookkeeper/

-- 
Cheers,
Aaron