In a post to a private mailing list I follow, Software Conservancy chief Bradley Kuhn has confirmed that an unexpected problem highlighted recently by CASH Music is indeed a real issue for open source groups in the USA seeking to formalise non-profit status. I asked Bradley if he'd be happy to share some of the information from that posting and he agreed.
The problem is that, for unexplained reasons, the US tax authorities (IRS) are not approving applications from open source organisations for tax-exempt status very quickly - if at all. As Jesse von Doom notes in the blog posting that drew attention to the matter, "no one wants to draw the ire of the IRS", but Bradley observes that this is a problem he has been hearing about for over a year.
He explained that representatives of multiple projects have approached him at conferences over the last year or two worrying about delays, but he's not been able to comment publicly because he didn't have their permission to make it public. But he explained that there are many non-profits in this predicament. He's not felt that it was possible to take action on the matter until an organisation has its "Form 1023" application actually denied since the IRS position is "we're still reviewing", and nothing definitive has been said about whether or not Free Software non-profits deserve tax-exempt status in their opinion.
All the same, I too have heard from multiple organisations that there's at very least a delay, and from one or two that the delay has extended as long as three years, so there is definitely a problem. Some hypothesise this is because of complaints to the IRS from large corporations accusing open source non-profits of actually being tax avoidance devices for their competitors.
It would be good to have other non-profits come forward to share their experiences so we can all get a community-wide sense of how bad the problem is. Bradley tells me:
I've also been advised that it's highly unlikely that existing organizations (who are otherwise operating in fitting with their stated charitable mission) will have their [non-profit] status revoked even if new applicants are denied. It's apparently a tough process to revoke [non-profit status] from an org that is following all the rules.
If you're part of a group that's willing to share its experiences (before or after approval by the IRS), get in touch with me privately and I'll connect you with others who are interested and can help.