Open-Source Software Groups Face Tricky Road to Tax-Exemption

A recent IRS denial of an open-source company’s application for tax-exempt status highlights the challenge these organizations face in winning the designation if they don’t have an additional charitable purpose.

The IRS July 25 released a determination rejecting 501(c)(3) tax-exempt status for an unnamed company that stated its charitable purpose was creating an open-source software, which is code freely available for anyone to use or modify. That type of status creates a tax benefit for donors and tax-free income for the organization.

The IRS’s position on whether open-source software groups can be nonprofits has evolved over time.

The IRS approved ...