IRS Raises Questions About Charity Status of Mozilla Foundation

Technology experts are drawing attention to the fact that the Internal Revenue Service is raising questions about the Mozilla Foundation’s tax exempt status.

Revenues for the organization, which is behind the Web browser Firefox, were $75-million in 2007. Search-related royalties from Google accounted for 88 percent of that income, says Erick Schonfeld on Tech Crunch.

The Mozilla Foundation argues that search-related fees should be treated as royalties, and thus not count as business income under the tax code. If the IRS rules against it, the organization will lose its status as a charity and will have to become a private foundation.

Mr. Schonfeld says that Mozilla is “pretending to be a nonprofit foundation when everyone knows it is a charitable arm of Google.”

He says another question remains: How Google counted the $66-million it paid to Mozilla last year. He says: “Was it a charitable contribution, or lumped in with its regular traffic acquisition costs?”

John D. Colombo, writing on the Nonprofit Law Prof Blog, says the case is not the first where questions about whether payments are “royalties” or unrelated business income have arisen, citing previous tussles with the Sierra Club and AARP.

“My guess is that the IRS is going to classify this income as UBI (unrelated business income), not royalties, but there’s certainly enough doubt about the definition of royalties that I wouldn’t bet much on it,” he writes.

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