QUOTE(Kelly Martin @ Fri 28th January 2011, 6:00am)
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QUOTE(gomi @ Thu 27th January 2011, 4:46pm)
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This is not an exhaustive list. The Wikimedia Foundation would be within its right to sell the Wikipedia site to a for-profit company in exchange for a revenue stream. That for-profit company could shut down all user accounts and install advertising if they wanted to. The resulting revenue stream would (for a time) be very substantial. The Wikimedia Foundation would need to use the proceeds from such a sale for its charitable purpose.
And, in fact, it would probably have to do this if it wanted to monetize the site, because of the restrictions on charities receiving income from business activities. The wholly owned for-profit subsidiary would have to pay corporate income taxes, and distribute some or all of the retained earnings after taxes back to its parent nonprofit. (See also the Mozilla Foundation and Mozilla Corporation.) Arguably Wikipedia should have been set up this way in the first place.
They just never should have applied for 501©(3) status in the first place. It was a mistake to ask for it, and it was a mistake for the IRS to grant it.
A taxable non-profit corporation would have been much better (and much simpler than the Mozilla setup). Basically, they'd set up the WMF just the way they did, not apply for 501©(3), and file a regular 1120 each year. Donations wouldn't be deductible, but I'd guess that most small donations aren't deductible anyway (most US citizens don't itemize), and the large donations could be replaced by advertising/sponsorships (which generally *are* deductible as business expenses). Yes, they'd have to pay taxes on their net income, but in the end they're going to eventually spend it all anyway, and they could possibly argue that the donations were non-taxable as either gifts or capital contributions (I don't know, that'd have to be run past a tax pro smarter than I). And a carefully structured taxable LLC would have probably been the best, though that would have had to have been carefully structured by a tax-savvy lawyer or a lawyer working closely with a tax expert.
All in hindsight, of course. Except for the idea of making Wikipedia into a non-profit in the first place. I still don't entirely understand that. Even under the asset protection theory, I don't see why they couldn't have achieved the same thing in an LLC instead of a nonprofit organization.
This post has been edited by anthony: