IANAtaxL, in fact IANAL of any kind, but my reading is that the IRS doesn't want companies to set-up fig-leaf charities that absorb and hide their normal business functions.
If Apple or Google spun off a 503(c)(3) for Swift or Android how would that be a bad thing? It would ensure that the work of those developers stays open source and free to all. Even if it only applies to a particular platform it would still be open source and very useful for the world--if only to be able to see the code.
What the IRS needs is a few finer points of distinction... Let the FOSS development be tax-free as long as it's GPL or similarly licensed (the code must stay open no matter what) but deny such status for code that is BSD-like which may (easily) be used in a tax-circumvention mechanism; where some core code could be open source but to actually make it work you need the proprietary derivatives.
Presumably you mean a 501(c)(3) -- a not merely tax-exempt organization but one to which donations are tax-deductible as charitable donations; the problem here with one sponsored by a for-profit company, whether its developing open source software or not, is that they run the risk of being directed at the for-profit company's priorities, and being a way for money to be, in effect, funneled into the companies business in a tax-deductible manner from those with a stake in the company's returns.
> What the IRS needs is a few finer points of distinction... Let the FOSS development be tax-free as long as it's GPL or similarly licensed (the code must stay open no matter what) but deny such status for code that is BSD-like which may (easily) be used in a tax-circumvention mechanism
The copyleft vs. noncopyleft distinction really has no bearing on the central problem here. The real problem is that, to the extent that there is legitimate reason to more closely look at 501(c)(3) applications from entities focussed on OSS (perhaps because for-profit entities have been trying to set them up as ways to improve the tax status of development efforts when they have an OSS-centric business model), this particular case doesn't seem to be one that should have been problematic -- not because of license terms, but because the potential problems that such scrutiny is designed to avoid aren't present. But that may just be a poor first-level decision or a result of poor application crafting, and not any real indication of any problem with the general policy.
