Brian's notebook fund, is it part of Wikimedia? was: Re: [Wikipedia-l] Interstate charitable solicitations

Wed Oct 8 13:45:56 UTC 2003

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NOTICE TO INDIVIDUALS NOT INTERESTED
IN TAX LAW DISCUSSION

Sorry this is long, but charitable tax law, trusts
and such stuff is complex. That is not my fault,
I have tried to be as brief as possible without omiting
any part of my argumentation so that someone
who is interested can follow my points as
completely as possible. If you are not interested,
just delete it without reading it.
Thank you.

Alex756
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From: "Ray Saintonge" <saintonge at telus.net>
> Alex T. wrote:
> >From: "Ray Saintonge" <saintonge at telus.net>
> >>Brion Vibber wrote:
> >>>On Mon, 6 Oct 2003, Delirium wrote:
...<snip>...
> This is a damn long-winded way of agreeing to what I said in one sentence.

This is not true, I was not agreeing. . I was stating that the fund
may be part of Wikimedia. Ec is only stating that Brian is
receiving a personal no strings  attached gift.
I am stating something quite different.

I could be wrong, but I think Ec has not understood
what I was talking about.

> >If someone gives you a gift it they may also have to pay a gift tax:
> >http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
> >
> At the risk of seeming insensitive, that would be the donor's problem.
>  Did the gift really exceed $11,000?  If it didn't then gift tax is not
> an issue.

How does one know how many gifts a donor may give? This statement
that  gift tax is not an issue is misleading, such a tax is a potential
problem for the donors, anyone receiving gifts should keep this in
mind before soliciting gifts, especially if it can make requests through
a charity when there is a charitable purpose. It would make better sense
to allow the gift to be given to the charity making it a donation, if such
can be legally achieved.

It is definitely an issue as it is part of the transaction cost of making
a gift. If the same person gives the money to Wikimedia
then instead of paying gift tax they would be obtaining a deduction
(a tax benefit) not being taxed (a tax liability) or receiving no
benefit (if the aggregate amount donated to one donee is
less than $11,000 per year). This is an important thing
not only for benefactor but for recepient to keep in mind;
giving the benefactor an additional  benefit encourages giving.

<...snip..>

> Brion should be happy that Alex is not his tax advisor!

This statement does not warrant a response, it appears to be
a personal attack. However perhaps Ec just didn't understand
what I was talking about.

Clearly I was  not stating that I am anyone's tax advisor, nor
am I giving any tax advice, what I am stating is that we do not
have all the facts and we are not in the position to determine the
facts of Brian's life and his personal tax liability which may
be based upon his status as a sole proprietor of a business
and the legal determination that  the money he receives is
part of his business income. He certainly seems to believe
that the money might be personal income. Perhaps he
has a good reason to think that it is income?

I was stating the issue of tax status of "donations"  through
concrete factual investigation,  not just conjecture.

Other internet promoted developers have stated to me that
they accept "donations" for their activities that include distribution
of "free software" and they consider the money they receive
as "income". I did not advise these individuals of that,
they stated that to me.  It is their opinion and action, not mine.
I am merely stating that it is an approach that is followed
by other internet sites that accept donations as income as
there is a benefit. Of course most of these businesses
have operating expenses, thus the income they receive can be
offset by their expenses. This is not possible if what they are
receiving are "gifts". If they are accepting gifts they cannot
deduct their expenses, from these gifts. You cannot be
operating an business if you have no income or
expectation of income;  the IRS will disallow that
and classify your activity as a hobby. You can obtain
a much greater benefit if you are operating a business
and are receiving legitimate income; then all
your legitimate expenses may be deducted from income.
(not just the depreciation on the notebook). A "free"
software developer may be a business, clearly if
they receive funds for their services (maybe not
for copyright licenses).

...<snip>...

> The cash gift and the computer are two different issues.  Although it
> would discreditable behaviour for Brion to use the money for anything
> other than the stated purpose it would not be illegal.

Criminal? Probably not. Illegal? Perhaps it would be.
It may be a breach of contract,  or there may be an estoppel
or detrimental reliance issue.  If the money is collected for
a Wikipedia tool but then used for something else that is
not "cy-pres"  (a related purpose) is that not a misrepresentation
of a material fact?

The donors were led to believe that the money was to be used
to purchase a computer; and it would be used to improve the
Wikimedia software through Brian's efforts.

If the use (or similar use)  is not carried out the donors
could and possibly might demand their donations back.
It also is not equitable to say you are asking for money
for one thing and then just spend it on something else
that is unrelated. Brian did not say, just give me money
because I am a great guy and I deserve to get money from
whomever wants to give it to me. He stated he needed
a notebook to help Wikipedia projects as he is a
developer of the project. He may not receive
cash, but he does receive publicity (goodwill) and
is associated as an expert on Wikimedia software.

Donations can definitely have strings attached to them and they
can result in binding contracts. Many philanthropies give donations
with strings attached, I have done it myself and the charities I gave
it to have been bound by my conditions; they know that they
are bound as the donation with a condition creates a binding obligation.
As everything here is done in writing there is no Statute of Frauds
problem.

I make a donation to my deteriment and I rely upon the statements
of  the benefactor. That is a good substitute for consideration. It
creates a binding obligation. It may or may not be a "contract"
strictly speaking, but it can still be binding even if it is not a contract
"at law".

> If after buying the computer he chose to stop providing the assistance
that he has been
> giving, the only real effect might be a very severe case of bad
> wiki-karma.  The donors would be left witing it off as a bad experience.

Once again I cannot agree that there may not be an implied contract or
even an unjust enrichment argument there. This hypothetical sounds
like those charities that say, "Give us money for the sick children"
and then they pocket the money. This is exactly why the AGs
intervene in these kinds of things --  to protect donors.
Sometimes they do recover the money absonded by
fake charities, sometimes they arrest the individuals who basically
have misrpresented themselves to the public and converted the charitable
funds to something that they use for their own benefit. How easy it
would be for their lawyers if they could use the gift argument proposed
here to get out of any liability for fraud, misrepresentation and other
sundry "illegal" acts. Also, the donors could start a civil action against
those who took the money (and don't give me that it is too expensive, it
only
costs a few dollars to file a lawsuit in small claims and in federal court
someone might do it under diversity jurisdiction for $150).

>  Fortunately, in our atmosphere of trust, we don't need to give serious
> consideration to these worst-case scenarios.  The lack of legal
> obligation is an important element in determining whether something was
> a gift.

But there is an obligation. How can one say there is no obligation?
I cannot agree with this statement that there is no legal obligation.
Just by saying that it is an "atmosphere of trust" does not move the
whole activity out of the sphere of legal institutions; isn't this wishful
thinking? We are all bound by laws even if we attempt to contract
out of them and no one has attempted to contract out of law on
Wikipedia. Brian solicited money to buy a computer to use it
for Wikipedia, that is very clear. He is not just asking for people
to give him a gift. There is no statement to that effect anywhere.
It even states on Wikimedia's fundraising page:

"You can also donate to the Brion Vibber notebook computer fund."

This makes it sound like the notebook computer fund is part of
Wikimedia, no?

<..snip>...

> Exploring the possibility of reversionary interests just gets us even
> further from keeping it simple.  My impression is that there was more
> than one donor.  Are you suggesting that every one of them should have a
> reversionary interest? Gimme a break!

I said nothing of the sort -- this is a misreading and it seems to me
to be a very unreasonable misreading. Once again Ec seems
not to have understood the central point of my statements, i.e.
that the Notebook Computer Fund might be considered
part of Wikimedia, otherwise if not then maybe Brian
legitimately declares the income as part of his business and he
can deduct expenses (and may even be able to post a loss
and it may come to essentially the same tax liability, i.e. nothing
to Brian). This is all very simple, what is complex is the
law underlying it and what that means (and might mean in the
future since Wikimedia Foundation must comply with all
the laws relating to charitable organizations).

Regarding Wikimedia what I am saying is that hypothetically
Wikimedia  is authorizing Brian to accept donations for Wikimedia and
purchase a computer for it that Brian has possession of. Brian
may be putting the money in his own bank account, but he got
it through his association with WIkimedia.

Donors, generally speaking can't give a partial interest as their donation
unless the property is given in the form of a trust:
http://www.irs.gov/pub/irs-pdf/p561.pdf (at page 7) so obviously
anyone with a smattering of tax law knowledge would know what
I am talking about (sorry, tax law is complex, that is not my fault).

Thus, if Ec's interpretation was correct he is suggesting that
the donation would be a partial interest in property
which is generally not deductible in any case, obviously
that is not what I was talking about at all to anyone
who seems to know about taxation law.

While there is no statement in my post that the property is
being given to Brian in trust, however it might be reasonable
to assume that it was a  trust  (maybe just implied with no
 formalities, nothing could be simpler, the use of the word "Fund"
may be construed as making the money Brian receives a part
of Wikimedia's assets).

Then, the only possible interpretation of it being under a trust
is that it is a charitable trust, and Wikimedia would be the beneficiary
of the corpus of the trust. There would be some kind of
charitable purpose that would be carried out. Then there might
be some way to make the plan deductible from income for
the donors (it is interesting to note that the charitable condition
on the funds and the trust idea may come to the same essential conclusion).
I cannot see anyway a simple trust (one that is not charitable)
could allow for a deduction for the donors.

It is essentially the same as stating that Brian is authorized to accept
the funds on behalf of Wikimedia, buy the notebook, use it and
then give it to Wikimedia if and when he is either finished with
helping Wikimedia or does not need it anymore for that purpose.
If he sold it at fair market value the proceeds would go to
Wikimedia. Certainly some occasional use of it for
other purposes would not be a violation of any law (just like
working on Wikipedia at work for a few minutes is probably
not going to make your employer fire you). At some point
Wikimedia will have depreciated the full value of the equipment
and it may write it off its books. It could then be sold at fair
market value to Brian (which would be minimal after a number
of years). My feeling is that this would not run affoul of
the [[intermediate sanctions]] provisions of the tax code.
I would be interested in seeing if anyone disagrees with that.
I cannot see how Brian could be an "disqualified person,"
under Section 4958 of the Code but I could be wrong.
In any case if he uses it for Wikimedia's exempt purpose
then he is not obtaining any benefit and 4958 appear not
to even apply it might only apply if there was a transfer of
title.

The whole point of the charitable domain is that once property
enters into it the benefit does not acrue to an individual, the
individual uses the property to help the charitable cause (Wikimedia).
The property in that case would belong to Wikimedia, Wikimedia
would have the reversionary interest as a charitable remainder under
the trust scenario (and with a constructive trust it can be imposed
after the fact or may be recognized as an implied or resulting trust).

If it were recognized as part of Wikimedia those who contributed
could possibly receive a charitable deduction rather than nothing
(a gift is not deductible from income) Brian could keep
the computer as long as he continues to volunteer (hopefully for
years). Is there anything wrong or illegal in that?  Brian did
announce this all on Wikipedia some time ago and it has been
at least implicitly allowed by Wikipedia and Wikimedia so it could
be considered a Wikimedia "fund" (of course if Brian gets more
money than the costs associated with the laptop he would have
to turn that over to Wikimedia or use it for Wikimedia somehow
with the approval or ratification of Wikimedia). In that case
there is no issue of the donations being any kind of income
or gift to Brian.

Alex756