Why is the IRS “targeting” free software?

Never mind the Tea Party and Occupy; the tax man was also giving open source software a cold stare

Topics: IRS, Tea Party, Occupy, open source software, Taxes, ,

Why is the IRS "targeting" free software?

The more we learn about the so-called IRS Tea Party targeting scandal, the less there seems to be alarmed about. On Monday, Alex Seitz-Wald reported that the IRS was also looking into groups with the word “Occupy” or “progressive” in their names. Liberals and conservatives were both getting a hard look.

As were, it turns out, groups that labeled themselves “open source software.”

Geek alert! Why would the IRS care that software programming organizations producing code free for all to share or modify as they see fit might want to seek nonprofit, tax exempt status? What part of “free” doesn’t the tax man understand? Other branches of the U.S. government actually contribute to open source projects.

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In the 2010 internal IRS document listing keywords for examiners to watch out for, the explanation is simple. Open source isn’t always what it seems:

Open Source Software

These organizations are requesting either 501(c)(3) or 501(c)(6) exemption in order to collaboratively develop new software. The members of these organizations are usually the for-profit business or for-profit support technicians of the software.

One could quibble with the word “usually.” A better substitute might be “often.” There is definitely plenty of overlap between for-profit businesses and open-source software. It’s a murky world, and some groups probably deserve tax-exempt status while others don’t. (At Mother Jones, Kevin Drum highlights a reader’s letter suggesting that the confusion is exacerbated by the IRS’s chronic underfunding.)

But the key thing to focus on here is that the IRS document acknowledges that there are no clear lines to be drawn around “open source”: “There is no specific guidance at this point. If you see a case, elevate it to your manager.”

So maybe “targeting” was never the right word to use in this “controversy” in the first place. Maybe “flagging for review” would be more appropriate?

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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