[volunteers] (forw) updated LUG HOWTO, esp. on tax/corp. craziness

Rick Moen rick at linuxmafia.com
Fri Mar 16 21:01:01 PST 2007

May be of interest in light of SVLUG's brush with these issues -- and 
my sense that misconceptions still abound.

----- Forwarded message from Rick Moen <rick at linuxmafia.com> -----

 Date: Fri, 16 Mar 2007 17:34:25 -0700
 To: conspire at linuxmafia.com
 From: Rick Moen <rick at linuxmafia.com>
 Subject: [conspire] Installfest tomorrow;
	updated LUG HOWTO, esp. on tax/corp. craziness


Back in 2003, Kendall Clark of the North Texas LUG passed maintenance of
the Linux Documentation Project's "Linux User Group HOWTO" to me.  I did
quite a bit of revamping over the following year, but then neglected it
for three years after that.  So, it's spring cleaning time -- and I've
been tightening up and updating it, again, catching up on events:


"7. Legal and political issues; 7.1 Organisational legal issues" got a 
partial re-write.  Because of persistent errors in this area by some USA
LUGs, the section about the United States got this new summary section
-- because this nonsense -=still=- keeps getting maintained by people
who should know better:

   Common Misconceptions Debunked:

   * Incorporation and tax-exempt status are separate issues. You don't
   have to be incorporated to get recognition of tax-exempt status. You
   don't have to be tax-exempt to be incorporated. (Odds are, you honestly
   won't want either. You just probably assume you do.)

   * The "liability shield" one can get from incorporating 
   _doesn't protect volunteers from legal liability_. All it does 
   is prevent any plaintiffs from suing individual shareholders 
   (LUG members, in this case) for tort damages _merely because 
   they own the corporation_, if the corporation itself is alleged 
   to have wronged the plaintiff. Plaintiff's maximum haul in 
   damages from suing the corporation is limited to the corporate 
   net assets, in that one case. However, volunteers are still
   fully liable for any personal involvement they're alleged 
   to have had.

   * Umbrella insurance coverage against tort liability (i.e., 
   against civil litigation) for your volunteers almost certainly 
   costs far too much for your group to afford (think $2,500 each 
   and every year in premium payouts, give or take, to buy $1M in 
   general liability insurance coverage -- which generally would 
   cover only the corporation as a whole and its directors in the 
   strict performance of their defined duties), if you can find it 
   at all.

   * IRS recognition as a tax-exempt group doesn't mean donations to
   your group necessarily become tax-deductible: Automatic
   deductibility is reserved to _charities only_, IRS category 501(c)(3),
   which must obey extremely stifling restrictions on group activities
   (e.g., it would then become illegal to host anti-DMCA events or 
   support any other political activity), and must meet exacting 
   paperwork and auditing standards. It's difficult to envision 
   501(c)(3) charity status actually making functional sense for 
   any Linux group -- though one continually hears it recommended 
   by those who imagine being able to tell people their donations 
   will be guaranteed tax deductible must justify any accompanying 
   disadvantages. Most LUGs would more logically file (if at all) 
   for recognition as a "social and recreation club", category 501(c)(7) [1].

   * In any event, unless one wishes to become a registered charity to
   render incoming donations tax-deductible, there is _literally no point_ 
   in applying for IRS recognition of your small, informal Linux group 
   under any of the Internal Revenue Code section 501(c) tax-exempt 
   statuses, because IRS simply doesn't care about groups with annual 
   gross revenues less than $25,000, and doesn't want to hear from them. [2]

   * The Federal Volunteer Protection Act of 1997 [3] does not [4], in 
   fact, shield volunteers of Internal Revenue Code section 501(c)(3) 
   charities from tort lawsuits. At most, it furnishes some legal 
   defences that can be raised during (expensive) civil litigation, with 
   a large number of holes and limitations, and in most states will 
   be denied unless the group also carries large amounts of (very 
   expensive -- see above) liability insurance. Also, unless the 
   volunteer's duties are not very meticulously defined and monitored, 
   and the alleged tort occurs strictly in the scope of those duties, 
   there's no shield at all -- plus the litigated action must not involve a 
   motor vehicle / aircraft / vessel requiring an operator's licence, 
   nor may the volunteer be in violation of any state or Federal law, 
   else again there's no shield at all. (On the bright side, it's 
   completely false, as often alleged, that the volunteer must
   be a member of the group, to be covered: In fact, the Act clearly 
   states that a volunteer may be anyone who performs defined services 
   for a qualifying group and receives no compensation for that labour.)

   As may be apparent from the above, a number of groups have, in the
   past, talked themselves into unjustifiable levels of bureaucratic
   strait-jacketing with no real benefit and serious ongoing
   disadvantages to their groups, because of misconceptions, careless
   errors, and tragically bad advice in the above areas. In general, you
   should be slow to heed the counsel of amateur financial and tax
   advisors. (This HOWTO's maintainer had past experience during his
   first career as a _professional_ finance and tax advisor, but, if you
   need competent advice tailored to your situation, please have a
   consultation with someone currently working in that field.)

   [1] http://www.t-tlaw.com/lr-06.htm
   [2] http://www.guidestar.org/news/features/990_myths.jsp
   [3] http://www.congress.gov/cgi-bin/query/C?c105:./temp/~c105ss2v68
   [4] http://www.runquist.com/article_vol_protect.htm

South Bay Linux people may recall that SVLUG recently emerged from
having had damned near _every one_ of the above-listed errors urged upon
it, leading to much unpleasantness and silly handwringing ("What if
someone electrocutes himself at an installfest?"), before the situation
was corrected.  I'd like, if possible, to help other groups avoid
wandering down any of the same garden paths.

The Linux Documentation project hasn't yet posted the update on its main
site and mirrors -- should happen RSN -- but my local copy can always be
read here: http://linuxmafia.com/lug/  (Note that the LinuxDoc SGML is
always available, and that this is a freely licensed document under
Creative Commons BY-SA 3.0.

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conspire at linuxmafia.com

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