I'd guess the open questions would be: 1) How would this impact the charitable non-profit status of WMF?

Gregory Maxwell wrote: The general rule is that a non-profit organization should have at least one-third of its annual income come from a combination of: governmental donations, donations from other public charities, and small (less than 2% of total income each) donations from the general public and private charities (large donations can still have the first 2% counted). If that all adds up to less than 1/3, things get considerably more complicated. Whether advertising income would cause a problem depends on how much we expect to get, and how much in large donations from private individuals and charities we typically get. -Mark

On 4/23/06, Michael R. Irwin <michael_irwin(a)verizon.net> wrote: Presumably he is referring to the "public support test", section 509 of the Internal Revenue Code. Failure to meet the test would have the organization deemed a private foundation which would have significant negative tax effects. In extremely excessive cases the organization could completely lose its non-profit status. Anthony _______________________________________________ foundation-l mailing list foundation-l(a)wikimedia.org http://mail.wikipedia.org/mailman/listinfo/foundation-l

Section 509(a)(3) Supporting Organizations Supporting organizations are public charities that carry out their exempt purposes by supporting one or more other exempt organizations, usually other public charities. The category can cover many types of entities including university endowment funds and organizations that provide essential services for hospital systems. The classification is important because it is one means by which a charity can avoid classification as a private foundation, a status that is subject to a much more restrictive regulatory regime. The key feature of a supporting organization is a strong relationship with an organization it supports. The strong relationship enables the supported organization to oversee the operations of the supporting organization. Therefore, the supporting organization is classified as a public charity, even though it may be funded by a small number of persons in a manner that is similar to a private foundation. Like all charitable organizations, a supporting organization must be organized and operated exclusively for purposes described in section 501(c)(3). A supporting organization must also be organized and operated exclusively to support specified supported organizations. Moreover, a supporting organization must have one of three relationships with the supported organizations, all of which are intended to ensure that the supporting organization is responsive to the needs or demands of the supported organization and intimately involved in its operations and that the public charity is motivated to be attentive to the operations of the supporting organization. Type I supporting organizations are "operated, supervised, or controlled by" the supported organization. Type II supporting organizations are "supervised or controlled in connection with" the supported organization. Type III supporting organizations are "operated in connection with" the supported organization. Since Type III relationships are less formal than a Type I or Type II relationship, Type III organizations must meet a responsiveness test and an integral part test. Section 1.509(a)-4(i)(2) and (3) of the Income Tax Regulations. These tests are designed to ensure that the supporting organization is responsive to needs of a public charity and that the public charity oversees the operations of the supporting organization. Finally, the supporting organization must not be controlled directly or indirectly by disqualified persons (defined in section 4946), who generally are substantial contributors and their family members. Section 509(a)(3)(C). Some promoters have encouraged individuals to establish and operate supporting organizations described in section 509(a)(3) for their own benefit. There are a variety of methods of abuse, but a common theme is a "charitable" donation of an amount to the supporting organization, and a return of the donated amounts to the donor, often in the form of a loan. To disguise the abuse, the transaction may be routed through one or more intermediary organizations controlled by the promoter. Organizations that operate for the personal benefit of their founders are not operated exclusively for purposes described in section 501(c)(3). Where part of an organization’s net earnings inures to the benefit of private persons or where more than an insubstantial part of its activities benefit private interests, the organization will fail to qualify, or lose its tax-exempt status under section 501(c)(3). In addition, section 4958 excise taxes may be imposed on its disqualified persons and organization managers as defined under section 4958(f). Even in cases where the organization does not operate for the personal benefit of its founder, it may fail to qualify for section 509(a)(3) classification for several reasons. It might be controlled by disqualified persons. It might not be sufficiently responsive to the needs or demands of a supported public charity. It might not maintain a significant involvement in the affairs of a specified publicly supported charity. A specified public charity might not be motivated to be attentive to its operations Loss of section 509(a)(3) classification means that the organization would be classified as a private foundation, subject to excise taxes under chapter 42 for a variety of reasons including self-dealing transactions and improper investments. _Additional information_: /Public Charity or Private Foundation Status, Issues Under IRC 509(a)(1)-(4), 4942(j)(3), and 507,/ 2003 EO CPE Text Topic B <http://www.irs.gov/pub/irs-tege/eotopicb03.pdf> /Control and Power: Issues Involving Supporting Organizations, Donor Advised Funds, and Disqualified Person Financial Institutions/, 2001 EO CPE Text Topic G <http://www.irs.gov/pub/irs-tege/eotopicg01.pdf> /Public Charity Classification and Private Foundation Issues: Recent Emerging Significant Developments/, 2000 EO CPE Text Topic P <http://www.irs.gov/pub/irs-tege/eotopicp00.pdf> /Supporting and Publicly Supported Organizations/, 1993 EO CPE Text Topic J <http://www.irs.gov/pub/irs-tege/eotopicj93.pdf> /Exclusion from Private Foundation Status Under IRC 509(a)(3)/, 1982 EO CPE Text Topic B <http://www.irs.gov/pub/irs-tege/eotopicb82.pdf>

Delirium wrote: Interesting information. Do you have any further detail. Is the above a good general guideline because it is mandated by law; accepted as good practice by accountants, IRS, rating organization, possible donors or other? Any background you care to provide regarding where you gained this knowledge would also be appreciated but I can follow up elsewhere if you do not care to provide that private information on a public mailing list.

I thought the Gates Foundation *was* a 501(c)(3) organization. I could be wrong about that, though. Either way, a 501(c)(3) can be a private foundation *or* a public charity.

On 4/23/06, Delirium &lt;delirium(a)hackish.org&gt; wrote: I thought the Gates Foundation *was* a 501(c)(3) organization. I could be wrong about that, though. Either way, a 501(c)(3) can be a private foundation *or* a public charity. In fact, all 501(c)(3) organizations which make more than $5000 other than churches are by default considered private foundations unless they apply for and qualify as public charities under 509(a). (see IRC 508(b) and 509(a) at http://www.access.gpo.gov/uscode/title26/subtitlea_chapter1_subchapterf_par…). Also, donations to private foundations generally *are* tax deductible, just to a lesser extent (30% of AGI vs. 50% for most individual taxpayers). The 1/3 test is 509(a)(2). The other (trickier) tests are 509(a)(1), 509(a)(3), and 509(a)(4).

I'd guess the open questions would be: 1) How would this impact the charitable non-profit status of WMF?

2) Will the advertising programs be okay with only showing the ads to some small fraction of our users?

Anyway, I'm not a lawyer, and not even a CPA, just a lowly non-government-regulated tax accountant. This is not tax advice, blah blah blah (whatever crap that lawyer keeps saying about Circular 230, that goes for me too). Anthony _______________________________________________

I personally would not object to advertisement, as long as it's not intrusive (popups, flashing, pushing a significant portion of the article away from first page, etc.) and editorial independence is safeguarded. However, I do know that there also exist Wikipedia editors who do fiercely oppose it, and we might simply lose some of them.

Having said that, I see some practical difficulty with your proposal. Would anonymous visitors and people who have not changed their settings see the advertisements? If yes (opt-out system), then I fear that the abovementioned people will still have the same strong objections. If no (opt-in system), then I doubt whether the amount of money generated by such advertising would be worth the trouble taken.

As said before, I personally think some simple advertisement would be a good way to raise some money, but I also know there is quite some resistance in the community about it. Or rather, there was such resistance a few years ago. Of course attitudes may have changed since then.