Re: [gentoo-project] Re: [gentoo-nfp] 2021 Trustees election

[Robin H. Johnson]

On Wed, Jul 07, 2021 at 11:05:47AM -0700, Matt Turner wrote:
> On Wed, Jul 7, 2021 at 7:26 AM Aaron Bauman <bman@g.o> wrote:
> > > Are you instead interested in the Foundation moving from a 501(c)6 to
> > > a 501(c)3 so that donations are tax deductible? If so, have you done
> > > anything to work towards that?
> > >
> >
> > We are not a 501(c)6 and never have been. We also have never been a
> > 501(c)3 as the original board members never completed the paperwork.
>
> This is a pretty great example of the lack of communication I'm
> talking about.
Not just lack of communication. Horrible US law as well and people
making assumptions about what a "valid" state is.

> If we're not a 501(c)6 and never have been, then what are we and why
> don't you just state that so we're all on the same page?
Your statement misses some things:
A) If we aren't a 501(c)(6), what are we?
B) What set of rules are we required to operated under?
C) What set of rules are we actually operating under?

Part A was one of the significant questions we asked the CPA based on
the accounting services RFP. And I'm not going to spoil this section
with a TL;DR answer, because I want people to READ the section.

The earliest trustees were intending to file paperwork to become a
*501(c)(6)*, but never completed the paperwork. To the best of my
research, there was no paperwork attempted by the earliest trustees
towards a 501(c)(3).

What follows is my IANAL & IANA(CPA) summary of the IRS "Life Cycle of a
Business League (Trade Association)"
https://www.irs.gov/charities-non-profits/other-non-profits/life-cycle-of-a-business-league-trade-association

A *new* corporation can come into existence (based on filing articles of
incorporation), and state it's INTENT to become a recognized 501(c)(6)
or 501(c)(3).

At that point, in some documentation, it's referred to as an
not-yet-recognized 501(c)(3/6). It does NOT have IRS Determination
Letter yet. Some donors, grantors and others might not yet provide
discounts for tax-exempt organizations. The organization cannot issue 

As a not-yet-recognized 501(c)(3/6):
- "Starting Out": the entity must acts under the set of rules that would applicable to a 501(c)(3/6)
- "Applying to the IRS": files to become a 501(c)(3/6) & waits for the IRS review 

If it doesn't file to become a 501(c)(6), then it's a normal corporation
business in the eyes of the IRS for any filings that are due at that
point.

At the same time, it can be a non-profit corporation recognized by a US
state, which is what we are: recognized by New Mexico as a domestic
non-profit corporation.

> According to [1] we seem to be a 501(c)1.
> [1] https://wiki.gentoo.org/wiki/Foundation:Articles_of_Incorporation
Just because the text "501(c)(1)" occurs in your search doesn't mean you
read what that section says.
https://wiki.gentoo.org/wiki/Foundation:Articles_of_Incorporation#Article_V_-_Restrictions
TL;DR: It says unless we CANNOT do activities that a 501(c)(1) can.
| Notwithstanding any other provision of these articles, the Corporation
| shall not carry on any activities not permitted to be carried on by a
| Corporation exempt from Federal income tax under section 501(c)(1) of
| the internal Revenue Code of 1986 or the corresponding provision of any
| future United States Internal Revenue Law (hereinafter, the "Code").


> According to Funtoo [2] we seem to be a 501(c)6.
> [2] https://www.funtoo.org/Organization:Gentoo_Foundation

> According to Wikipedia [3] we seem to be a 501(c)6.
> [3] https://en.wikipedia.org/wiki/Gentoo_Linux#History

> This [4] says the Gentoo has never been a 501(c)6 and since
> that's in the foundation namespace, I assume it must be definitive.
>
> So there's a *lot* of confusing information out there, and this could
> all be cleared up with some clear statement on the Wiki. As you said,
> it should all be on the Wiki. :)
>
> [4] https://gitweb.gentoo.org/foundation/financials-rfp.git/plain/build/gentoo-foundation-rfp.pdf

So we reach a conclusion:
- we are a corporation
- In New Mexico: bound by the rules of a non-profit corporation
- AND for the IRS: filing & paying taxes as a private corporation
- AND *voluntarily* holding ourselves to the STRICTER rules that a
  501(c)(6) would follow, specifically because that permits future
  transition to a 501(c)(6) status. (see
  https://www.irs.gov/charities-non-profits/other-non-profits/life-cycle-of-a-business-league-trade-association-jeopardizing-exemption)

In some ways, this means right now we're in one of the worst possible
spots in terms of our status: we play by stricter rules than we have to,
and don't get any of the benefits of being a federally recognized
non-profit corporation.

You may find the IRS Exempt Organizations-Technical Instruction Program
for IRC 501(c)(6) Organizations to be of interest.
https://www.irs.gov/pub/irs-tege/eotopick03.pdf

If the Foundation & Council cannot find an Umbrella who is mutually
agreeable to have us as a project, we wind up in some of the other
options of the future state of the Foundation.

The *cheapest* option is to go full-private corporation, but that risks
the takeover concerns and I believe would be in bad faith with the
membership and the larger Gentoo culture.

The most expensive is transferring or forming a new 501(c)(3), with a
501(c)(6) being a middle ground.

-- 
Robin Hugh Johnson
Gentoo Linux: Dev, Infra Lead, Foundation Treasurer
E-Mail   : robbat2@g.o
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