I didn’t get much out of the TechDirt article. I got a lot more out of the Slashdot comments, Jim Nelson’s blog, and the full determination letter itself.
The most valuable piece of background from the blog and comments: The IRS has been on the lookout for “Open Source Software” organizations as the latest known tax dodge. It’s a dodge because many organizations are operating according to the mode of “give away the razor, sell the blades”. That is, let anyone download and use the software (basically a free sample), but support, consulting, and perhaps closed-source extensions of the same code base require a fee. In a practical this amounts to “humans get it free, companies need to pay.” You can no more claim to be a charity under this model than Baskin Robbins could claim to be a charity for giving out free samples. The existence of a commercial interest destroys exemption.
So on to Yorba itself: they state that 90% of their effort is writing code, and the remaining 10% awareness programs and fundraising. They claimed to be set up as exempt due to their missions of education, science, and charity. Those are the only criteria they’ll be judged on, since the IRS can cite code that requires Yorba to provide enough information to make a determination. If they fill out the forms poorly, the blame rests on them.
The educational claims are shot down pretty easily because they teach no classes, offer no formal instruction, produce no materials, and have no other efforts. Their only claim is that the wikis and code itself are educational materials. The IRS finds that pretty flimsy, and it’s only incidental because code must be available if the user is to modify the code, which is a claim of the product they’re making. At this time, they don’t deliberately produce anything that can be called educational materials.
The scientific claim is also shot down because code and precedent clarify what it means to be a scientific organization: you do science, for the public. Yorba does not.
So everything rests on whether or not they can be called a charity. In their application, they do not mention the “erection or maintenance of public buildings, monuments, and works” clause, which might be slightly better bent to their cause. They go all in on “relief of the poor and distressed or of the underprivileged”. We know from the dodge that the IRS is specifically looking for that people can download the software and then still pay for support. Yorba has no way of establishing that any underprivileged person ever downloaded the program once. They are a corporation making a product, and whether they are charitable depends entirely on the question of whether you believe that they only give away the software (and support) for free, and then reaching at least some underprivileged persons. Yorba has not demonstrated that. Thus in the eyes of the IRS, they’re just a do-gooder corporation with a bad business model.