We are a LegalEntity, a non-profit corporation, per the state of NH. However, there is discussion about what kind of non-profit status we should seek with the IRS (Federal), and when we should even bother to seek it.

See also LegalEntityTypeCharitable, where information on the 501(c)(3) (charitable organization) applications process is being collected, under the assumption that we are going to try for that.

IRS guidance

Most of this section was compiled by BenScott. It is his interpretation of IRS-provided guidance. Do not assume this interpretation reflects reality. In particular, experienced people assert that GNHLUG has a reasonable chance of qualifying as a 501(c)(3) charitable organization. (It may be that the IRS-provided guidance is biased in favor of collecting revenue; that is their mission, after all.)

General information

There are quite a few different types of organizations which are tax-exempt. Most of them we definitely are not, or definitely do not want to try to be. For example, we're not an "Agricultural/horticultural organization". I see only a few possible candidates, in roughly increasing order of likelihood:

Social and Recreation Clubs

Social and Recreation Clubs - Section 501(c)(7)

This is almost not worth considering. I only note it here because "hobby clubs" are given as an example of a 501(c)(7) org. Some choice quotes from Pub 557:

  • "organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes". While I do hope we all enjoy our involvement in GNHLUG, we are not primarily about fun and games.
  • "submit evidence ... that there are limits on admission to membership consistent with the character of the club". Our incorporation paperwork explicitly states membership is open to all, and most people seem to want it that way.
  • "engage in business such as selling ... products or services, it generally will be denied exemption." So no selling CDs, T-shirts, etc.

Charitable organizations

Charitable organizations - Section 501(c)(3)

The major advantage to a 501(c)(3) is that donations are not just tax-exempt for the receiver (GNHLUG), but also tax-deductible for the donator. That can be a strong incentive for donations. (But do we need such?) Due to this benefit, the paperwork requirements for keeping track of things like fund-raising and contributions are stricter.

Organizing document

Charity - Required Provisions for Articles states that the "organizing document must limit the organization's purposes to one or more of the exempt purposes set forth in section 501(c)(3)". Our incorporation paperwork did not get into this. We would have to amend our charter before submitting our exemption application. (But that's not overly hard.)

Qualifying activities

Exemption Requirements spells out a lot of the requirements in plain English, and it appears that several of them would conflict with GNHLUG's history and/or goals.

It states that exempt purposes are:

  • charitable
  • religious
  • educational
  • scientific
  • literary
  • testing for public safety
  • fostering national or international amateur sports competition
  • preventing cruelty to children or animals

Where does GNHLUG fit in there? It goes on to list examples of "charitable" activities:

  • relief of the poor, the distressed, or the underprivileged
  • advancement of religion
  • advancement of education or science
  • erecting or maintaining public buildings, monuments, or works
  • lessening the burdens of government
  • lessening neighborhood tensions
  • eliminating prejudice and discrimination
  • defending human and civil rights secured by law
  • combating community deterioration and juvenile delinquency

In short, the above appears to be about "betterment of mankind" sort of things. Jokes about zealotry aside, I'm not sure Linux would qualify in the eyes the IRS.

Political activities

A repeated theme in GNHLUG organizing has been that we want to push for acceptance/adoption of Linux/FOSS in government and education. Limits are imposed on political activities undertaken by 501(c)(3). In particular, Lobbying Activity states that "no organization may qualify ... if a substantial part of its activities is attempting to influence legislation". It goes on to state that it is okay if one does "some lobbying, but too much lobbying activity risks loss of tax-exempt status". Of course they never define "too much".

Social welfare organizations

Social welfare organizations - Section 501(c)(4)

Life Cycle of a Social Welfare Organization states the organization "may be performing some type of public or community benefit but whose principal feature is lack of private benefit or profit". Okay so far.

Social Welfare Organizations says political lobbying is okay, within certain limits.

Social Welfare Purposes states "...organization must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements)". That could be us. It goes on to say that an org which "restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community and, therefore, does not qualify". While "employees of selected corporations" doesn't really apply to us, the intent behind the "private group" part may be relevant.

Social Welfare: What Does It Mean? How Much Private Benefit Is Permissible? (PDF) specifically addresses this question. It does seem like GNHLUG is likely in a gray area, here. Some relevant quotes:

... where the services furnished by an organization are beneficial to the community and available to all members of the community on an equal basis, irrespective of membership, a social welfare objective will generally be found to exist. However, where an organization limits its services and benefits to its members, the organization is not ordinarily operated exclusively for the promotion of social welfare ...


Although the Service has been making an effort to refine and clarify this area, section 501(c)(4) remains in some degree a catch-all for presumptively beneficial nonprofit organizations that resist classification under the other exempting provisions of the Code. Unfortunately, this condition exists because, "social welfare" is inherently an abstruse concept that continues to defy precise definition. Careful case-by-case analyses and close judgments are still required.

In short, while we might be able to argue our case, it seems quite possible that we would have to argue it. Do we want to go down that road? Would we be better off avoiding the argument?

Business leagues

Business leagues (trade associations) - 501(c)(6)

Requirements for Exemption - Business League states:

  • "A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit."
  • "It must be shown that the conditions of a particular trade or the interests of the community will be advanced."

Common business interest states: "For this purpose, the term business is broadly construed. For example, it includes professions..."

Composition of membership states:

  • "a membership organization characteristically supported by dues. Although an organization may receive a substantial portion or even the primary part of its income from non-member sources, membership support, either in the form of dues paid to or involvement in the organization's activities, must be meaningful."
  • "membership support includes ... substantially related activities ... contributions from the general public"
  • So membership support is critical, but need not be the primary source of funds, and support can include activities, not just money. I would think our member participation in the mailing lists and presentations at meetings easily meets this requirement. It doesn't generate money, but it's our primary activity, furthers our cause, and is absolutely member-driven.

"Substantially related" defined states "The causal relationship must be substantial. The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related." So getting together for dinner does not qualify, but getting together to hear about some cool Linux software is okay. If we do dinner, too, I guess that's okay.

Apropos selections from Examples of common business interests:

  • "Promoting higher business standards and better business methods"
  • "Encouraging the use of goods and services of an entire industry"
  • "Attempting to influence legislation germane to the common business interests of an organization's members"

Other guidance

Ed Lawson

Ed is an actual lawyer, so he's better qualified to speak on this than most of us (in particular, me). Summarization of key points:

  • He recommends we claim 501(c)(3) status (10:16, Aug 22, 10:03, Aug 23)
  • A 501(c)(3) can perform limited political lobbing; we are unlikely to go over any limits (13:59, Aug 22)
  • Easiest method would be to become an affiliate of Learning Networks Foundation (10:03, Aug 23)
  • No need to file Form 1023 unless we receive over $5000/year (ibid)
  • "No reporting requirements at all" unless we receive over $25,000/year (ibid)
  • One has to have a multi-year budget to file Form 1023 (ibid)
  • We should worry about this stuff later (ibid)
  • We should also seek the guidance of someone with specific experience in 501(c)(3) tax law (ibid)

Bruce Dawson

  • "Carole's company (Rivendell a.k.a. Learning Networks Foundation) is a 501(c)(3) and will act as a fiscal agent for similarly minded organizations." (13:17, Aug 22)


maddog has a long, gray beard, which automatically makes him qualified to speak on any subject. ;-) Plus, since he's been rather involved in LI and at least somewhat involved in USENIX, he's got some apropos experience.

  • He stated some concerns with lobbying (04:20, Aug 26):
    • Potential GNHLUG presence at trade shows, etc., where we might speak against patents, etc.
    • "we have a lot of strong-willed people in our group who might want to have the group actively lobby for things"
  • USENIX had advised that obtaining a 501(c)(3) was becoming harder to get, and a 501(c)(6) was easier (ibid)
  • Sister orgs (one a 501(c)(3), one a 501(c)(6) for politically-connected stuff) are a possibility (ibid)

Other stuff

Other 501(c)(3) orgs

Useful resources

Mailing list discussions

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Topic revision: r5 - 2008-03-13 - BenScott

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