Mailing List Archive

On 4/22/06, Tony Bruguier <tony.bruguier@gmail.com> wrote:
> Hi,
> I'm new to this list, so please forgive me if I mess up. There's been
> some talk about advertisement on wikipedia or not. Why not make it
> optional, so that each user decides if he/she wants to see the
> advertisement? That way, users can "support" wikipedia or not. I don't
> think that'd be a sell out.

I think this is a fantastic idea, (although I'm sure it's been heard
before), especially if we defaulted it to off and made it a user
preference.

But there are a lot of other issues with advertising beyond the
community issues, such as the impact on the foundations charitable
non-profit status.

In any case, such a move might be a way to start further exploring
advertising without upsetting the community or bringing in enough
money to cause huge tax complications. It would also give editors who
don't donate money because they feel they already donate time a way of
helping out with the server bottom line. I suspect would avoid much of
the risk of donations going down because people believe we are ad
supported, although I don't have enough data to determine how many of
our donors are editors/have accounts. It would be nice to collect that
data in the future.

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?

Software wise this would be fairly straightforward to implement, and
could even be done to a limited extent by the users without developer
involvement (by inserting the advertising code in the users
monobook.js).
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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

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On 4/23/06, Delirium <delirium@hackish.org> 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.

Hmm. Well, iff we actually had a good handle on our donation income
stream we could control the advertising to avoid crossing that line
(just disable it even for users that have it on if it's bringing in
too much).. but I don't get the impression that we have enough
visability into our future donations. :)
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2006/4/23, Tony Bruguier <tony.bruguier@gmail.com>:

> I'm new to this list, so please forgive me if I mess up. There's been
> some talk about advertisement on wikipedia or not. Why not make it
> optional, so that each user decides if he/she wants to see the
> advertisement? That way, users can "support" wikipedia or not. I don't
> think that'd be a sell out.

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.

--
Andre Engels, andreengels@gmail.com
ICQ: 6260644 -- Skype: a_engels
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On 4/23/06, Andre Engels <andreengels@gmail.com> wrote:
> 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.

No one who isn't some profit all costs would want that. Look at
mediawiki sites like wikia.com to see how advertising can be
integrated into mediawiki without being obnoxious.

> 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.

It isn't an opt in systems if anons get it by default.
I'd propose a fully opt in system for two strong reasons:

1) We can be reasonably confident that an opt-in system will not have
a substantial negative impact on the normal flow of donations.
2) It's the only solution which isn't likely to enrage some people.

There may be a place in the world for opt-out advertising, but it's a
fundamentally different issue.

> 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.

There is a lot of resistance, for some good reasons and for some bad
reasons. The absolutely enormous income possible from advertising
could have a tremendous impact, it could allow positive development
unparalleled in the world of free content... but it could also create
a shift away from our most honorable goals. I think people are right
to fear it.

But just because site wide, always on, reader impacting,
advertisements carry risks we find unacceptable, that doesn't mean we
must avoid minor things like opt-ins advertising for editors.

It's like the cafepress shop... doesn't bring in much money, but it
doesn't hurt either.. an no one seems to be leaving over it.
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Gregory Maxwell wrote:

>I'd guess the open questions would be:
>
>1) How would this impact the charitable non-profit status of WMF?
>
>
Zero impact. Nonprofit means that surplus revenue is not handed to
private individuals as a return on investment. The Wikimedia Foundation
can funnel as much money as they and their contributors feel they are
willing invest in the public good/purpose as per the
charter/organization plan/etc. approved by the State of Florida. I
have been told that arrangements are in progress to select a CPA and get
the first required audit completed.

The Bill and Melinda Gates Foundation has assets of approximately 25
billion dollars so given billy boy's and pals past performance in
extracting revenue from captive or coerced markets it probably has an
annual income from stock dividends or splits anywhere between 2.5 and 5
billion dollars.

That revenue is government regulated and must be spent in accordance
with the laws of the state, country or tax haven the foundation is setup
within. If you are interested you might be able to find an audit
report for past years online somewhere.

>2) Will the advertising programs be okay with only showing the ads to
>some small fraction of our users?
>
Several potential problems occur to me:

1. Back in the good ol days whenever the issue of revenue came up Jimmy
always came forward as a generous sugar daddy with deep pockets. The
issue always went away. I believe he made some committments regarding
ads and ad revenue. He also made some good points about the benefits
of no distraction from the authentic information on an encyclopedia page.

He will probably take a bit of a credibility hit with the forkers he was
discouraging if he now decides that advertising is necessary and ok.
Certainly I will waste no opportunity to shout it from the housetops.

2. Advertising revenue implies counting who and how may have seen the
ads. I am already rationing my use of google and other search engines
which spy on me and which are required by law to secretly share the
results of this spying with regulatory authorities and secret police.
Further, most of the privacy statements are long winded and weasally
but eventually get around to some kind of sharing with affiliates,
partners, consortium, multinational conglomerate pieces, etc. etc.

Probably the easiest way to implement this user choice is a fork.
Answers.com currently supports itself by reporting Wikipedia data
packaged with advertising. There are others around the net. Most of
them do not provide identification information regarding who owns the
revenue stream generated. I sincerely hope they are not affiliated with
any of our volunteers, employees or stacked Board members or affiliated
assets.

An easy way to experiment would be for Wikia to turn on a fork using
user choice as you suggest and find out what happens.

If this would be too potentially detrimental to our all powerful
figurehead and beloved God King or the community ..... then some other
volunteer, developer, profiteer, or entrepreneur could emulate
answers.com using the methods you suggest and possibly get rich.

3. Revenue sources are always applicable to discussion regarding fat
cat biases built into information products. The guys with the gold
always want to make the rules ... and then change the rules when
somebody starts to kick the shit out of them on their own playing field
or even demand the dignity due a beast of burden diligently pursuing
masters' programs given priority over personal responsibilities or
inclinations.

This is somewhat similar to the debates we used to have over whether
P'hds simply must have courtesies and preference due their long years of
servitude in academia rather than justify their opinions with citations
and actual data or arguments if Wikipedia were to attract any adequate
expertise to prosper. I wonder how he is doing with his for profit
cable venture presenting P'hd'ed expertise freed from academia to the
masses?

Who makes the rules around here? The guy that controls the stacked
Board controlling the nonprofit foundation paying for the centralized
editing bandwidth, the advertisers with the gold, the P'hds with
unsubstantiated opionions and no time to make their case piece meal with
drooling slackjawed trolls or script kiddies experimenting with Turing
Tests, the measily masses of volunteers who show up occasionally, or the
enlightened readers/writers of the TINC list?

Regards,
lazyquasar



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On 4/23/06, Tony Bruguier <tony.bruguier@gmail.com> wrote:
>
> Hi,
>
> I'm new to this list, so please forgive me if I mess up. There's been
> some talk about advertisement on wikipedia or not. Why not make it
> optional, so that each user decides if he/she wants to see the
> advertisement? That way, users can "support" wikipedia or not. I don't
> think that'd be a sell out.
>
> Tony
> http://en.wikipedia.org/wiki/User:Bruguiea
> _______________________________________________
> foundation-l mailing list
> foundation-l@wikimedia.org
> http://mail.wikipedia.org/mailman/listinfo/foundation-l


Thanks for your suggestion. I for one would not feel fundamentally disturbed
by seeing ads imcluded like at wikia.com, especially not when they can help
to secure the future of Wikimedia's projects. However, one major concern
persists no matter if we make ads optional or mandatory: How can it be
assured advertisers don't influence Wikipedia's content? IMHO, once we start
selling ads customers will invariably affect our content to some degree. For
the most part probably not in a spectacular way but rather in a very subtle
manner. For example articles that deal with companies that regularly
advertise on Wikipedia will most likely tend to contain slightly less
critisism than they normally would, in order not to lose those customers.
They will possibly have a tendency to sound a little bit more well-meaning
than articles on competing companies that don't buy ads. On top of that,
Wikipedia editors will spend more time and effort on writing content dealing
with companies that advertise on Wikipedia. Not because of any gross
corruption, simply because they will be more aware of them, seeing their
names while spending time at Wikipedia. An increased number of commercial
links in articles might be another possible side-effect of allowing ads.

Once again, this is not to say that I'm fundamentally opposing all forms of
advertising under all circumstances. It is vital for our project to have a
solid financial basis and we might one day reach a point where donations
will no longer be sufficient. However, the community should be aware of the
fact that generating income by means of selling ads will almost invariably
reduce our independence to some degree.

Arbeo
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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?

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.

Thanks for the information.

Sincerely,
lazyquasar

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On 4/23/06, Michael R. Irwin <michael_irwin@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
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On 4/23/06, Michael R. Irwin <michael_irwin@verizon.net> wrote:
> Gregory Maxwell wrote:
>
> >I'd guess the open questions would be:
> >
> >1) How would this impact the charitable non-profit status of WMF?
> >
> >
> Zero impact. Nonprofit means that surplus revenue is not handed to
> private individuals as a return on investment. The Wikimedia Foundation
> can funnel as much money as they and their contributors feel they are
> willing invest in the public good/purpose as per the
> charter/organization plan/etc. approved by the State of Florida. I
> have been told that arrangements are in progress to select a CPA and get
> the first required audit completed.
>
> The Bill and Melinda Gates Foundation has assets of approximately 25
> billion dollars so given billy boy's and pals past performance in
> extracting revenue from captive or coerced markets it probably has an
> annual income from stock dividends or splits anywhere between 2.5 and 5
> billion dollars.
>
As has already been pointed out, it's simply not true that there is
zero impact. As for your example, the Bill and Melinda Gates
Foundation is a private foundation, not a public charity, and they
don't make their revenue off of advertising anyway.

One need only look to the Mozilla Corporation to see the impact of
making advertising a significant portion of revenue. Note I said the
Mozilla Corporation, not the Mozilla Foundation. To quote Wikipedia:
"The Mozilla Corporation is a wholly owned subsidiary of the Mozilla
Foundation that coordinates and integrates the development of
Internet-related applications such as the Mozilla Firefox web browser
and the Mozilla Thunderbird email client by the growing global
community of open-source developers, only some of which are employed
by the corporation itself." "The Mozilla Corporation was established
on August 3, 2005 to handle the revenue-related operations of the
Mozilla Foundation. As a non-profit, the Mozilla Foundation is limited
in terms of the types and amounts of revenue." Mozilla wanted to
charge Google et. al. lots of money to put their search engines in the
search engine box of the browser (essentially, advertising). So they
started a wholly owned taxable subsidiary corporation to do so. It's
much easier than dealing with UBTI, the public support test, and the
risk of losing non-profit status.

That would probably be the best solution for Wikipedia as well if they
wanted to get any significant amount of advertising revenue. Form a
wholly owned subsidiary corporation and put the ads on the for-profit
site. The edit link would point to the standard site owned by the
non-profit. This would also answer the opt-out/opt-in question. To
opt-in to ads you go to wikipedia.com. To opt out, you go to
wikipedia.org. (Or whatever the two different urls were).

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
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On 4/23/06, Tony Bruguier <tony.bruguier@gmail.com> wrote:
> Hi,
>
> I'm new to this list, so please forgive me if I mess up. There's been
> some talk about advertisement on wikipedia or not. Why not make it
> optional, so that each user decides if he/she wants to see the
> advertisement? That way, users can "support" wikipedia or not. I don't
> think that'd be a sell out.

If someone wants to implement an "opt in" ad feature, I have no real
opposition to it, but it strikes me as looking for love in the wrong
place. The tiny fraction of pageviews that would be ad-enabled does
not, in my belief, make this a significant revenue stream.

I remain opposed to anything but an "opt in" model for ads unless our
existing fundraising methods fail us. We've learned a lot during the
last fundraising drive (e.g., donation targets are necessary, appeals
and other emotional or interesting messages increase the incentive to
donate), and I'll be interested to see how the next one goes.

Erik
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Michael R. Irwin wrote:
> Delirium 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.
>>
> 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.
>

The official guidelines on the subject are in IRS publication 557,
"Tax-Exempt Status for Your Organization". The relevant chapter for the
Wikimedia Foundation is chapter 3 on 501(c)(3) organizations (online:
http://www.irs.gov/publications/p557/ch03.html).

I was a bit imprecise; these aren't requirements for all non-profit
organizations, but specifically for 501(c)(3) organizations, the type
that are required to be public charities. That gives added benefits
over private charities (like the Gates foundation), such as allowing
people who donate money to deduct those donations from their taxes. It
also includes added requirements; for example, they must serve a public
purpose (rather than a community or niche purpose), must spend their
money on activities that advance that public purpose (not social
activities), and must receive a substantial amount of their monetary
support from the general public, either directly or through government
entities or other public charities. One-third support seems to be the
official line above which the organization is safe; if the public
support is less than that but above 10%, it's still possible to maintain
the status, but things get trickier.

-Mark

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On 4/23/06, Delirium <delirium@hackish.org> wrote:
> Michael R. Irwin wrote:
> > Delirium 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.
> >>
> > 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.
> >
>
> The official guidelines on the subject are in IRS publication 557,
> "Tax-Exempt Status for Your Organization". The relevant chapter for the
> Wikimedia Foundation is chapter 3 on 501(c)(3) organizations (online:
> http://www.irs.gov/publications/p557/ch03.html).
>
> I was a bit imprecise; these aren't requirements for all non-profit
> organizations, but specifically for 501(c)(3) organizations, the type
> that are required to be public charities. That gives added benefits
> over private charities (like the Gates foundation), such as allowing
> people who donate money to deduct those donations from their taxes.

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_partii_.html).

Also, donations to private foundations generally *are* tax deductible,
just to a lesser extent (30% of AGI vs. 50% for most individual
taxpayers).

> One-third support seems to be the
> official line above which the organization is safe; if the public
> support is less than that but above 10%, it's still possible to maintain
> the status, but things get trickier.
>
The 1/3 test is 509(a)(2). The other (trickier) tests are 509(a)(1),
509(a)(3), and 509(a)(4).

Anthony
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On 4/23/06, Anthony DiPierro <wikilegal@inbox.org> 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.

Just checked with Guidestar (I'd give a link, but you need a free
account to see the information). The Bill & Melinda Gates Foundation
"is a 501(c)(3) Private Nonoperating Foundation."

Anthony
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If we did this we could add it in our donation page so that ppl who click
thru to there might become users just to display the adds. This might
increase the revenue stream a bit more than what it otherwise would be.
Maybe also if we put an automated message on everyone's talk page about it
when we introduce it. en. has (i think) 1 million users, most of whom never
edit, but if even a small percentage of them read while logged in (quite
possible - is there some easy way to mine the Database data to find out?)
then most would see the message and a percentage would opt-in which would
still be 10s maybe even 100 thousand people.

paz y amor,
-rjs.

On 24/04/06, Anthony DiPierro <wikilegal@inbox.org> wrote:
>
> On 4/23/06, Anthony DiPierro <wikilegal@inbox.org> 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.
>
> Just checked with Guidestar (I'd give a link, but you need a free
> account to see the information). The Bill & Melinda Gates Foundation
> "is a 501(c)(3) Private Nonoperating Foundation."
>
> Anthony
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Anthony DiPierro wrote:

>On 4/23/06, Michael R. Irwin <michael_irwin@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@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

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Anthony DiPierro wrote:

>
>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
>_______________________________________________
>
>

Thanks for the info. You are way above me in knowledge on these
issues. I thought we were discussing the basic accounting question and
the difference between the concept of gross revenue and net profit
returned to personal pockets.

This concept of interlocking mutually regulating/cross checking mazes of
incestous relationships in non profits is new to me.

I knew this kind of crap is used in interlocking Boards of Directors,
divisions, stock holdings, etc. in conglomerates and holding companies
of for profit corporations but I have only read laymans interpretations
of this or introductory business texts, never actually experienced it
directly in any meaningful way.

Thanks for the reference on Circular 230. I will check it out.

Regards,
lazyquasar

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Delirium wrote:

>Michael R. Irwin wrote:
>
>
>>Delirium 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.
>>>
>>>
>>>
>>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.
>>
>>
>>
>
>The official guidelines on the subject are in IRS publication 557,
>"Tax-Exempt Status for Your Organization". The relevant chapter for the
>Wikimedia Foundation is chapter 3 on 501(c)(3) organizations (online:
>http://www.irs.gov/publications/p557/ch03.html).
>
>I was a bit imprecise; these aren't requirements for all non-profit
>organizations, but specifically for 501(c)(3) organizations, the type
>that are required to be public charities. That gives added benefits
>over private charities (like the Gates foundation), such as allowing
>people who donate money to deduct those donations from their taxes. It
>also includes added requirements; for example, they must serve a public
>purpose (rather than a community or niche purpose), must spend their
>money on activities that advance that public purpose (not social
>activities), and must receive a substantial amount of their monetary
>support from the general public, either directly or through government
>entities or other public charities. One-third support seems to be the
>official line above which the organization is safe; if the public
>support is less than that but above 10%, it's still possible to maintain
>the status, but things get trickier.
>
>
>
Excellent expansion and clarification Mark! Thank you very much. I
think that gives me as much knowledge as I wish to have on this subject
for the moment. I do appreciate the links to further specific
information and will file this note for future reference if I ever get
involved in assisting with the launch or maintenance of a non profit.
Thanks again!

Sincerely,
Michael R. Irwin

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Anthony DiPierro wrote:

>On 4/23/06, Delirium <delirium@hackish.org> wrote:
>
>
>>Michael R. Irwin wrote:
>>
>>
>>>Delirium 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.
>>>>
>>>>
>>>>
>>>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.
>>>
>>>
>>>
>>The official guidelines on the subject are in IRS publication 557,
>>"Tax-Exempt Status for Your Organization". The relevant chapter for the
>>Wikimedia Foundation is chapter 3 on 501(c)(3) organizations (online:
>>http://www.irs.gov/publications/p557/ch03.html).
>>
>>I was a bit imprecise; these aren't requirements for all non-profit
>>organizations, but specifically for 501(c)(3) organizations, the type
>>that are required to be public charities. That gives added benefits
>>over private charities (like the Gates foundation), such as allowing
>>people who donate money to deduct those donations from their taxes.
>>
>>
>
>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_partii_.html).
>
>Also, donations to private foundations generally *are* tax deductible,
>just to a lesser extent (30% of AGI vs. 50% for most individual
>taxpayers).
>
>
>
>>One-third support seems to be the
>>official line above which the organization is safe; if the public
>>support is less than that but above 10%, it's still possible to maintain
>>the status, but things get trickier.
>>
>>
>>
>The 1/3 test is 509(a)(2). The other (trickier) tests are 509(a)(1),
>509(a)(3), and 509(a)(4).
>
>
>
Thank you Anthony for the excellent clarification! I will file this
information for future reference and sleep comfortably tonight knowing
that you and Mark are well informed on the general requirements of non
profit foundations. No longer an immediate issue of interest to me
unless we decide it would be beneficial to have an independent
Wikiversity organization to work with the Wikimedia Foundation in
meeting long term requirements.

Sincerely,
Michael R. Irwin

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On 4/24/06, Michael R. Irwin <michael_irwin@verizon.net> wrote:
> 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

The 990-EZ for Wikimedia's first year is already available on
Guidestar. Any later ones which were filed (there should be at least
one) are required to be provided by the Wikimedia office upon request.
I suppose someone should send Danny an email requesting them.

Anthony
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