501(c): (3) versus (6)

August 25th, 2008 in Business

501(c) organizations are US non profit organizations. 501(c) is actually the name of the IRS tax code that defines non profits.

There are actually 28 kinds of 501(c)‘s. I’ll focus here on just two:

They are both nonprofits, exempt from federal income tax.

Here are some of the main differences: (Note that I am not an attorney nor an accountant, so you should consult other experts if you are actually creating one of these organizations!)

501(c) (3) 501(c) (6)
Benefit to the public. Trade organization or group of professionals with related business interests. Benefit to the organizations members.
Donations are tax deductible. Membership dues are a business expense, but donations are not tax deductible.
Very limited political lobbying allowed. Any amount of political lobbying that is related to member interests.
Eligible for grants. Not eligible for grants.
Must limit activities to specified cause. Members must have common business interest.

The GNOME Foundation is a 501(3)(c) that supports “the goal of the GNOME project: to create a computing platform for use by the general public that is completely free software.” The GNOME Foundation is supported in its mission by many individuals and companies.

3 Responses to “501(c): (3) versus (6)”

  1. It seems like this begs the question “Why isn’t GNOME a 501c6 instead of a 501c3?” From the list it seems like there are only two real advantages to being a 3 over a 6 — donations are tax deductable and it can apply for grants.
    I’m not 100% certain, but looking at jdub’s map of GNOME, it seems like a substantial majority of folks participating in GNOME are outside the US — so the tax deduction elements in the IRS tax code don’t matter much to them. The exception might be if other nations had some sort of reciprocal agreement regarding charities, which doesn’t seem likely.
    The other issue is applying for grants. I don’t hear about much of that going on, and I’d assume that once again most of that would be US focused grants. Again, this doesn’t make much sense as most of the grants regarding free software have been coming out of individual governments (not the United States) or from the EU. In fact the biggest source of grants for GNOME seems to come from Google Summer of Code.
    Eclipse has shown that you can run a strong community that is a 501c6 structured organization. Individuals still have a lot of say, but so do the companies that contribute to the organization. I’d imagine that GNOME is somewhat structured to give individuals a larger say in the community, but what about the case when so many developers work for a handful of companies (Novell, Red Hat, Canonical, Collabora, etc). It seems like GNOME is in a similar situation where we have lots of members with a common business interest, but we’re sorta strangled from lobbying by the IRS tax code structure.

  2. Stormy says:

    If the GNOME Foundation became a 501(c)(6) it would then have to act in the member company’s best interest – which hopefully would be aligned with the GNOME project’s best interest or in the goal of bringing a free desktop to the world – but they wouldn’t necessarily be one and the same. Our charter would be less clear.
    It would be a trade organization run by the member companies instead of an organization run by an elected board of directors.
    Right now our sponsor companies are part of the community but they don’t run the community. (Granted, the GNOME Foundation doesn’t run the community either but it is the community – it’s members are all GNOME contributors.)

  3. Alberto Ruiz says:

    Hey Stormy, great post!
    It’s quite interesting to learn this kind of things which are rarely explained to the broader community. Also, it’s nice to start seeing activity on your blog regarding your new position.
    Keep us in the loop, we appreciate it a lot!