RSSMozilla prepares for bad times, and an audit
By Angela Gunn | Published November 20, 2008, 3:43 PM
Lean, not-mean, and sustainable is the way to take on the current economic climate and the Feds too, say Mozilla reps who posted the project's audited financial statements and tax forms for 2007 and gave a glimpse ahead...to today.
The relatively peaceful era of 2007 went well for Mozilla in both Foundation and Corporation forms. Revenues were up about 12%, mainly from their Google search-functionality arrangement, though search revenue didn't keep pace with Firefox's user base growth. Revenues were $75 million against expenses of $33 million, mainly for staff (Mozilla employs around 150 full- and part-time employees) and, to a lesser extent, infrastructure. Assets were $99 million, with unrestricted net assets at $82 million.
The Mozilla Foundation doled out around $700,000 in funds for development-related activities, and another $321,326.40 for various other open-source-related projects. You'll notice that that number's rather specific, which makes this as good a moment as any to mention that the IRS has taken an interest in the Mozilla Foundation -- yes, that's an audit underway.
The question appears to be whether the Foundation is a public charity (as Mozilla believes it to be) or a private foundation, which makes a difference as to whether the money from Google qualifies as royalties or unrelated business income (UBI). If it's UBI, there will be tax owed, the Foundation will be reclassified as a private foundation (and not tax-exempt), and its nonprofit status would be taken away.
Mozilla's keepers thought this might come up, as they note in the disclosure post, and in 2005 they laid in a "tax reserve fund" just in case. "We are early in the process and do not yet have a good feel for how long this will take or the overall scope of what will be involved," the post cautioned, and considering the complexity of the tax code, this could take many months to resolve.
It's certainly an unusual arrangement, to gather such a huge percentage of funding (Google accounts for about 88% of that $75 million) from one essentially commercial financial deal. And, as TechCrunch blogger Erick Schonfeld points out, it'll be interesting to hear how Google itself accounts for that $66 million. The Foundation secured an advance ruling that declared it to be a public benefit corporation, and non-Google public support is still over the crucial 10% level.
The announcement inspired a certain amount of blogosphere hyperventilation. Self-proclaimed Google watchdog Daniel Brandt accused Mozilla of "evading taxes," dug up the old Leona Helmsley quote about how only the "little people" pay them, and concluded with a statement that "Mozilla Foundation owes the IRS and California a lot of money, and they also owe everyone an apology for selling out to Google-style arrogance and greed."
Cooler heads, such as that of John Colombo at the Nonprofit Law Prof Blog, weren't so quick to rule: "My guess is that the IRS is going to classify this income as UBI, not royalties, but there's certainly enough doubt about the definition of royalties that I wouldn't bet much on it."
Moving forward, Mozilla says it's feeling good about continuing with "relative stability" despite the financial crisis, stating that it has been doing so much with so little for so long that strange economic times make no impression. The foundation is sitting on "a significant amount" of retained earnings and has no current expectation of dipping into it, saying that revenues for the near term are sufficient to fund ongoing projects.
And that's a win for open source, not to mention for existing outside the world of share prices and market valuations. "The open source software development model is adept at providing multiple tools to achieve our goals," the post says. "Financial resources are a catalyst, but neither the goal nor the only tool."
Mozilla, as currently configured, is not sustainable. It has nowhere to go but down, and possibly out.
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:-S
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I think every company and person in this country is preparing for bad times. If not.... they should be.
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Heck yeah -- crazy not to. (Does that come with air-sick bags? Because I obviously have to watch the markets as part of the job, and my stomach is getting weaker by the day.)
That said, Mozilla's perhaps in relatively good position to make it through these times more or less intact: Google's not going anywhere, the project's not operating for a primarily profit motive, and -- sad to say -- there are a whole lot of very good tech folk who are gonna need a project to help keep their skills sharp during the next few months or so.
Hold on tight, everyone.
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Recessions and depressions are--long term--good for economies. They weed out businesses that have no business being in business.
The big three auto manufacturers have no legit need to be in business. They ignored eroding marketshare instead of innovating. They thought golden years of the 50's and 60's would last forever.
A wake-up call for any large corp that dominates: you are not as safe as you think you are.
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Of course -- like forest fires and meteor extinctions. Doesn't mean, however, that all those things are not insanely painful to behold, let another live through.
And if we are to list the sins of the Big Three, let us not forget the perils of planned obsolescence. I'm sure it looked brilliant at the time -- have a factor other than genuine innovation drive the buying cycle. There are some fascinating books on the topic of course; I wonder what some of those historians would make of some of the financial products that brought us to this point...
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Or just register as a public charity. That always works.... Oops.
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Your story reads as if I offered up a knee-jerk reaction to Mozilla's latest disclosure. In fact, your quotation from me comes from http://www.scroogle.org/mozilla.html and you should have noticed that the date under my byline is January 29, 2006.
I was me who tried for months to get the 2004 Form 990 from Mozilla Foundation, and when it was finally made available in January 2006, as required by law, I was the first to raise the issue of Mozilla's failure to classify its Google windfall as unrelated business income. This meant that Mozilla considered it tax-exempt, and they still haven't paid the taxes on it. In 2005 it was the same story. Starting in 2006 they began paying taxes because now they had the Mozilla Corporation to front for the Mozilla Foundation.
I had an exclusive in January 2006 and tried hard to interest several journalists. Now that the IRS is apparently pursuing in this issue, you accuse me of hyperventilation nearly three years later. On the contrary, I'm burned out and bored with the issue.
That's what I get for my trouble, apparently, but you needn't go out of your way to diss me.
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I wouldn't worry too much.
It might be diffeent if she had a clue as to what the the actual substance of the article meant.
;-)
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Foxy dude! I have THE idea! Why don't YOU start your own news blog? Obviously you have limitless wisdom and limitless time on your hands. Let's do it. I'll be the first to subscribe (but only if you put a US banner as backdrop).
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I suspect you're being tongue-in-cheek if not outright sarcastic, but if anybody on this site could pull it off, it would probably be foxfyre.
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That's an idea. She could call it Foxy's Fire. It might actually be interesting reading.
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