Originally published on Forbes.com Aug 6th, 2013
One of the hardships of life in the 21st Century is that you end up needing way too many usernames and passwords. What is really tough is when you are required to set them up for something that you rarely need to do. I’m sure I saved the password I need to renew my Florida CPA license in a very logical place – on the server of the firm that got bought by another firm that decided I did not have the right instinct for growth or something like that. I have plenty of time to sort it out, but it is still a pain.
Apparently somebody has come up with a solution:
X is a software requirements specification, which is a technical document describing what software will do and how it will be expected to perform. In other words, X is not software but rather is a blueprint for software. When X is implemented by an organization issuing X usernames and passwords (“X provider”) and a website accepting X (“X adopters”), it allows Internet users to consolidate their multiple Internet usernames and passwords into one universal username and password (“X user”). X is available from your website for free, and without registration, to any X user, X provider, or X adopter for any purpose, including commercial and noncommercial purposes. In a letter dated October 29, 2009, you state that X is “rapidly gaining adoption on the web, with over one billion enabled user accounts and over 50,000 websites accepted for logins.” Several large, commonly used websites are X providers or adopters.
What do Americans do when they want to advocate for a solution to a pressing problem. Alexis de Tocqueville in the 1830s, noted that we have a tendency to form associations.
Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds—religious, moral, serious, futile, extensive, or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools. If it be proposed to advance some truth, or to foster some feeling by the encouragement of a great example, they form a society.
There has been a bit of a refinement since the 1830s. If the association is one in which we are not planning to make money for ourselves, and sometimes even if we are, the next step is to apply to the IRS for exempt status. Under 501(c), there are 29 possibilities, but the gold standard is 501(c)(3). 501(c)(3) status allows donations to your organization to be deducted as charitable contributions. 501(c)(3) status also gives an often unwarranted credibility in some circles. You see quite a few organizations applying for it, that do not appear to be planning to exploit the federal tax advantages.
So the people promoting the “X” method for dealing with the muss and fuss of usernames and passwords applied for exempt status. The ruling(PLR 201329021) denying the organization exempt status does not provide the organization’s name, so I will, with apology to Stan Lee, call it X-Men. Why does the IRS think that X-Men is not a charity ?
In its application X-Men said:
You state that a “significant part” of your activities “will involve fostering and promoting the development of, public access to, and adoption of .” You expect to devote at least 50 percent of your time, efforts, and resources to these activities.
The IRS does not see that is being charitable:
You are not described in I.R.C. § 501(c)(3) as a charitable organization for promoting and distributing X. The term “charitable” is used in I.R.C. § 501(c)(3) in its generally accepted legal sense and is not to be construed as limited by the separate enumeration in that section. See Treas. Reg. § 1.501(c)(3)-1(d)(2). The term “charitable” includes the following: relief of the poor and distressed or of the underprivileged; advancement of education or science; lessening the burdens of Government; and promotion of social welfare by organizations designed to accomplish any of the above.
Merely providing X to the public for free is not a charitable activity under I.R.C. § 501(c)(3). Furthermore, as stated above, the Service has recognized charitable classes to include the poor, distressed and underprivileged, the aged, and the sick or handicapped. However, the public who may use X is not a recognized charitable class. Thus, you have not shown that you are operated exclusively for one or more exempt purposes.
I’m not sure that I agree with the IRS on this one. It might be that “X” could help a lot of distressed people – me for example and even lessen the burdens of government. I think this is a tough one. What do you think ? Besides asking your opinion I have a challenge – two challenges actually – one is for geeks in the classic sense of the term and the other is for tax geeks.
Will The Real X-Men Please Stand Up ?
Rulings denying exempt status are anonymous, but the disguise is often pretty thin. It took me about five minutes to crack the redaction of PLR 201315037 and get in touch with Joy Eubanks, founder of the Marley Fund, which is dedicated to fighting feline retrovirus. I think she got a really raw deal by the way. I thought for sure I would crack X-Men, but I have not done it so far. That is my challenge to classic geeks.
My friend, noted science fiction author John Sundman, has a head start on you. We were in the same homeroom in high school for three years, so that gives him an advantage and a disadvantage. The advantage is that when we were sophomores, the assignment 2-G was not arbitrary. We were classics honors and therefore taking Greek. The obvious disadvantage is that, since John didn’t like skip ten grades, he must be pretty old, so a young guy should be able to beat him at this game.
What Would You Have Done ?
My challenge to tax geeks is to explain how you might have framed the argument better to allow X-Men to qualify for 501(c)(3) or alternatively indicate what section they should have applied under.
No prizes. Just the honor and glory.
You can follow me on twitter @peterreillycpa.