[Foundation-l] Optional advertisement on wikipedia

[Michael R. Irwin]

Anthony DiPierro wrote:

>On 4/23/06, Michael R. Irwin <michael_irwin at verizon.net> wrote:
>  
>
>>Delirium wrote:
>>
>>    
>>
>>>Gregory Maxwell wrote:
>>>
>>>
>>>      
>>>
>>>>I'd guess the open questions would be:
>>>>
>>>>1) How would this impact the charitable non-profit status of WMF?
>>>>
>>>>
>>>>
>>>>        
>>>>
>>>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
>>>
>>>
>>>      
>>>
>>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?
>>
>>    
>>
>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 at wikimedia.org
>http://mail.wikipedia.org/mailman/listinfo/foundation-l
>
>
>  
>
Hmm ... from www.irs.gov search on "public support test section 509"

http://www.irs.gov/charities/article/0,,id=137609,00.html

>
>     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>
>
Fun stuff! I sure am glad the stacked Board is finding an excellent, 
licensed, bonded, high powered, high paid, unaffiliated, CPA to certify 
we have met all those pesky general requirements at the strategic level 
as well as all the properly nuanced shifty definitions referenced by 
link and of course the entire history of IRS case law and whatever new 
stuff they making up to extend the envelope as we think.

Clearly we are not a dynamic duo structure yet as most of the document 
discusses but perhaps some of the subprojects or new projects with large 
scope such as Wikiversity could become independent organizations with 
mutual support and accountability. Or we could seek to partner with some 
appropriate existing 503(s) with experience in this mutual cross 
checking requirement.

I wonder if Wikiversity has to be accredited before we start an 
endowment fund to guarantee perpetual, stable, adequate performance as a 
grid initilization, calibration and fuzzy logic center?

Further, I wonder if specific endowments could be established at 
existing accredited land, sea, space and/or air grant universities 
involved with distributed supercomputing to fund local redundancy assets 
sufficient to establish a Wikiversity Grid specific oceanstore substrate 
with appropriate diffusion rates, data pumping stations, backups, 
alerting (say parental controls or warrant specified data products) and 
toxic waste or bit rot repair handling provisions. Might attract some 
attention from Globus Developers if we used their tools to implement a 
full up permanent grid.

Actually I think an appropriate google search would probably turn up 
appropriate email contacts for all of the above should it be decided how 
we could usefully setup independent entities and design appropriate 
power control checks, balances, and audits between the various entities 
to meet operational and regulatory cross checking and auditing requirements.

Anybody know when some formal reports or conclusions routinely 
confirming the Wikimedia Foundation's tax status and compliance will be 
available for further assessment and planning purposes to the general 
public vs. the private working theaters or comm channels?

Regards,
lazyquasar