An organization that develops free open-source internet censorship-circumvention software does not qualify for 501(c)(3) exemption

Plain-English summary

To be tax-exempt under Section 501(c)(3), an organization must be operated
exclusively for exempt purposes (charitable, educational, scientific, and the like),
and even one substantial non-exempt purpose defeats exemption. Here, an organization
whose main work is building and distributing free, open-source software to help
people in censored countries set up proxy servers and get around internet censorship
applied for 501(c)(3) status. The IRS denied it. Developing and giving away
open-source software, the IRS reasoned, is a substantial non-exempt purpose: it
resembles ordinary commercial software development and is not, by itself, charitable,
educational, or scientific. The organization did not qualify as a scientific research
organization because its software work is the kind of routine design and development
incidental to commercial operations, and it keeps the copyright rather than fully
dedicating the results to the public. It did not further charitable purposes because
open-source software is not innately charitable and it does not limit the software to
a defined charitable class (the general public is too indefinite). It is not a
"public work" (software is not a facility, is not provided at public expense, and the
organization retains ownership). And it is not primarily educational because it mainly
develops software rather than instructing people. Anyone worldwide, including
commercial users, can use the software for any purpose, which the IRS treated as a
substantial non-exempt benefit. Groups distributing free software often assume that
"free and open" equals charitable; this letter shows the IRS does not agree.

Ruling snapshot

• Question: Does an organization that develops and distributes free open-source censorship-circumvention software qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied (fails the operational test; substantial non-exempt purpose)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1), (d)(2), (d)(3), (d)(5); Better Business Bureau v. United States, 326 U.S. 279 (1945); American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989); Rev. Rul. 65-1; Rev. Rul. 68-373; Rev. Rul. 72-369; § 7428(b)(2)

Full text (IRS public release)

                       Sincerely,


                       Stephen A. Martin
                       Director, Exempt Organizations
                       Rulings and Agreements
Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038




                                                   Letter 4038 (Rev. 11-2021)
                                                   Catalog Number 47632S
            Department of the Treasury
            Internal Revenue Service



                                                                              Date:
                                                                               07/29/2025
                                                                              Employer ID number:


                                                                              Person to contact:
                                                                               Name:
                                                                               ID number:
                                                                               Telephone:
                                                                               Fax:




Legend:                                                                      UIL:
B = Date                                                                     501.03-00
C = State                                                                    501.03-05



Dear           :

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don’t qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts
You were formed on B in the state of C. You state you have three different activities:
x Conducting empirical research on measuring and analyzing emerging censorship in heavily censored areas
   and creating innovative anti-censorship network protocols
x Developing and distribution on free and open-source software
x Creating and maintain hardware infrastructure for communication

You state you are developing an open-source desktop application designed to simplify the deployment,
management, and sharing of censorship circumvention proxy servers within the internet censorship
circumvention ecosystem. The purpose of the software is to lower the technical barrier for user to securely set
up and maintain proxies thereby enhancing decentralized and resilient access to open internet in censored
environments.

The software will primarily be used by individuals in countries where internet censorship is prevalent,
particularly netizens seeking unrestricted access to global online information. Additionally, technical volunteers
and researchers working on internet freedom projects can utilize your software to facilitate broader adoption of
circumvention tools. You are promoting your software through open-source communities, social media,
community outreach, direct outreach to advocacy groups, academic research and conferences. You aim to reach
both technical and non-technical users interested in strengthening online access against censorship.
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Your users will leverage your software to:
x Easily deploy personal proxies for secure and private internet access
x Share proxy access securely with friends and family in censored regions
x Utilize advanced circumvention protocols without needing deep technical knowledge
x Contribute to a decentralized censorship resistance network by running and maintaining independent proxy
   nodes

Your open-source software is designed to be self-service, meaning users can download, install, and use it
independently. However, you do anticipate offering the following services:
x Community support via forums and documentation that is free and publicly available
x Regular software updates and security improvements – Maintained as part of your open-source software
    project
x Technical guidance for organizations that are interested in deploying censorship-resistant networks which is
    provided on a case-by-case basis

You do not charge for these services as your mission is to promote free access to information. However,
organizations seeking custom implementations or advanced technical consulting may require external funding
or collaboration agreements.

In addition to you open-source software you engage in:
x Censorship circumvention research – Conducting studies on new blocking techniques and designing
    solutions to counter evolving censorship threats
x Community engagement and education – Providing educational material and resources to help users in
    censored environments better understand and use circumvention tools
x Collaboration with academic and advocacy groups – Sharing research insights and best practices with
    institutions working on internet freedom
x Policy and technical advocacy – Contributing to discussions on digital rights censorship and internet
    governance

Law
IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described
in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of
the purposes specified in such section. If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of
such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than
an insubstantial part of its activities is not in furtherance of an exempt purpose.




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Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term charitable as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term “charitable” also includes lessening of the burdens of government.

Treas. Reg. Section 1.501(c)(3)-1(d)(3) defines the term educational as the instruction or training of the
individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects
useful to the individual and beneficial to the community.

Treas. Reg. Section 1.501(c)(3)-1(d)(5) provides that a scientific organization must be organized and operated
in the public interest. Therefore, the term scientific, as used in Section 501(c)(3), includes the carrying on of
scientific research in the public interest. Scientific research does not include activities of a type ordinarily
carried on as an incident to commercial or industrial operations, as, for example, the ordinary testing or
inspection of materials or products or the designing or construction of equipment, buildings, etc. Scientific
research will be regarded as carried on in the public interest: (a) If the results of such research (including any
patents, copyrights, processes, or formula resulting from such research) are made available to the public on a
nondiscriminatory basis; (b) If such research is performed for the United States, or any of its agencies or
instrumentalities, or for a State or political subdivision thereof; or (c) If such research is directed toward
benefiting the public.

Revenue Ruling 65-1, 1965-1 C.B. 226, held that an organization that made research grants for the development
of new machinery to be used commercial operations and retained all the rights to the new developments, did not
qualify for exemption under IRC Section 501(c)(3).

Rev. Rul. 65-2, 1965-1 C.B. 227, held that a foundation operated exclusively to teach children a sport by
holding climes conducted by qualified instructors in schools, playgrounds, and parks and by providing free
instruction, equipment, and facilities qualifies for exemption under IRC Section 501(c)(3).

Rev. Rul. 66-179, 1966-1 C.B. 139, provides illustrations under which garden clubs may establish exemption as
charitable or educational organizations, civic organizations, horticultural organizations, or as social clubs.

Rev. Rul. 66-255, 1966-2 C.B. 210, holds that a nonprofit organization which through meetings, films, forums,
and publications educates the public in a particular method of painless childbirth is entitled to exemption.

Rev. Rul. 66-358, 1966-2 C.B. 218, described a situation where an acceptance of funds and adjacent realty by
an exempt organization for establishing a public park did not affect its exempt status under IRC Section
501(c)(3) even though the corporate donor retained the right to continue using the picture of a certain scenic
view in the park as its brand symbol.

Rev. Rul. 68-373, 1968-2 C.B. 206, held that an organization which primarily engaged in testing drugs for
commercial pharmaceutical companies did not qualify for exemption under IRC Section 501(c)(3).

Rev. Rul. 70-186, 1970-1 C.B. 128, held that an organization formed to preserve a lake as a public recreational
facility and to improve the condition of the water in the lake to enhance its recreational features qualified for
exemption under IRC Section 501(c)(3) as a charitable organization that erected or maintained a public work.
The ruling determined that, by treating the water, removing algae, and otherwise improving the condition of the



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water, the organization ensured the continued use of the lake for public recreational purposes and therefore
performed a charitable activity. Furthermore, the benefits of the organization's activities flowed principally to
the public through the maintenance and improvement of public recreational facilities.

Rev. Rul. 71-29, 1971-1 C.B. 150, held that providing the city transit authority with the funds necessary to
ensure that bus service for the city is continued is a charitable disbursement furthering exempt purposes.

Rev. Rul. 72-369, 1972-2 C.B. 245, describes on an organization formed to provide managerial and consulting
services for nonprofit organizations exempt under IRC Section 501(c)(3) of the Code to improve the
administration of their charitable programs. The instant organization made no profit from providing its services.
An organization is not exempt merely because its operations are not conducted for the purpose of producing a
profit. To satisfy the 'operational test’ the organization's resources must be devoted to purposes that qualify as
exclusively charitable within the meaning of Section 501(c)(3) and the applicable regulations. Providing
administrative services does not serve a charitable purpose. Thus, the organization did not qualify for exemption
under Section 501(c)(3) of the Code.

In Better Business Bureau of Washington D.C. Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court
held that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption
regardless of the number or importance of truly exempt purposes.

In American Campaign Academy v. Commissioner, 92 T.C. 1053, 1076 (1989), discussing Columbia Park &
Recreation Assn. v. Commissioner, 88 T.C. 1, 18-21 (1987), affd. without published opinion, 838 F.2d 465 (4th
Cir. 1988), the court indicated that the charitable purpose of an organization is not merely determined by the
number of persons benefitted. Specifically, the size of an organization is meaningless if it is not fully integrated
with a public element. Qualitative and not quantitative factors are more determinant of an organization's
charitable purpose. Further, class size is only one factor to be considered in the qualitative analysis; it is not the
sole determinant. It was also determined that the activities by the organization in this case substantially
benefited the private interests of political entities and candidates more than incidentally, which is a substantial
non-exempt purpose.

In Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008), it was found that under copyright law, dedicating certain
works to the public appears to include mere licensing to the public does not divest the copyright holder of all
right, title, and interest to the work.

Application of law
IRC Section 501(a) provides for the exemption from federal income tax for organizations described in Section
501(c)(3). As stated in Treas. Reg. Section 1.501(c)(3)-1(a)(1), an organization must be both organized and
operated exclusively for purposes described in Section 501(c)(3). You do not meet the requirements under
Section 501(c)(3) because you fail the operational test as explained below.

You have not demonstrated that you are operated exclusively for exempt purposes within the meaning of IRC
Section 501(c)(3). A substantial part of your activities is in furtherance of creating and maintaining open-source
software, which is not an exempt purpose; therefore, as described in Treas. Reg. Section 501(c)(3)-1(c)(1), you
are not operated exclusively for exempt purposes.




                                                                                         Letter 4034 (Rev. 01-2021)
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You are not operating exclusively for charitable, educational, or scientific purposes. You are operated for a
substantial nonexempt purpose because you develop open-source software that authorizes use freely by anyone
worldwide for any purpose, including potential nonexempt commercial, recreational, or personal purposes,
campaign intervention and lobbying. These providers and producers also derive a commercial advantage from
your open-source software because in its absence, they would either need to perform their own research,
develop their own software, or would have to purchase commercial software. You are like the organization in
Better Business Bureau because you have a single non-exempt purpose that is substantial in nature.

The Creation and Maintenance of Open-Source Software Does Not Further Scientific Purposes.
You do not qualify for tax exemption as a scientific research organization for your activities related to the
research and development of open-source software. To qualify as an IRC Section 501(c)(3) scientific research
organization, an organization must (1) engage in scientific research; (2) the scientific research must not include
activities that are incident to commercial or industrial operations; and (3) the scientific research must be
undertaken in the public's interest, as described in Treas. Reg. Section 1.501(c)(3)-1(d)(5).

Your self-described activities of research and development of technology such as software are like the two
organizations described in Rev. Rul. 65-1 and Rev. Rul. 68-373, in that you are engaging in routine software
and technology design, development, testing, and distribution, similar to that which a commercial software
company engages in to create new products or adapt their products to new uses to be competitive in the market.

Your activity is of a type ordinarily carried on as an incident to commercial or industrial operations. The fact
that the source codes for these programs will be open to the public does not remove such activity from being
incidental to commercial operations. Therefore, even if your research is made available to the public, you have
not demonstrated that you conduct scientific research because your activities are an incident to commercial
operations.

The Creation of Open-Source Software Does Not Further Charitable Purposes
You are like the organization in Rev. Rul. 72-369 because your resources are not devoted to purposes that
qualify as exclusively charitable as described in Treas. Reg. Section 1.501(c)(3)-1(d)(3). Whatever public good
you claim your open-source software provides, it is not the type of public benefit contemplated by IRC Section
501(c)(3). Not all organizations which incidentally enhance the public good will be classified as “public”
organizations within the meaning of Section 501(c)(3). For example, commerce clearly provides an economic
benefit to the community, but Treas. Reg. Section 501(c)(3)-1(c)(1) limits the kinds and amounts of commerce
exempt organizations may conduct. Because open-source software is not an innately charitable activity, and
because you do not limit the use of your open-source software to a charitable class, the development and
distribution of this software by you to the public under open-source licenses is not the type of benefit to the
community contemplated by Section 501(c)(3) and does not further charitable purposes as described in Treas.
Reg. Section 1.501(c)(3)-1(d)(2). Furthermore, an organization is not exempt merely because its operations are
not conducted for the purpose of producing a profit.

Your activities do not further a charitable purpose because you do not limit your services to a specific charitable
class. The class of people served must be both indefinite and have charitable characteristics. See American
Campaign Academy, in discussing Columbia Park & Recreation Assn,. Indefinite means that the specific
members comprising the class are not fixed. The public is an indefinite class, as are the users of the open-source
software you are developing. The magnitude and breath of the benefited class does not cause it to be inherently




                                                                                       Letter 4034 (Rev. 01-2021)
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                                                         6

charitable. The large size of the benefited class does not diminish the need for the class to have charitable
characteristics. Charitable characteristics are analyzed qualitatively.

The Creation of Open-Source Software Is Not a Public Work
Your substantial purpose is the development and distribution of open-source software. Treas. Reg. Section
1.501(c)(3)-1(d)(2) defines the term charitable to include “erecting or maintaining public buildings, monuments,
or works.” The charitable purpose underlying the concept of public works from Scott and Ascher on Trusts, 5th
ed. Section 38.6, as noted in American Campaign Academy, is to provide facilities for the benefit of the
community at public expense.

Open-source software fails several key tax characteristics of public works. First, software is not a facility. It is
not a lake, park, or like any other public work described in Rev. Rul. 66-358 and Rev Rul. 70-186. Software is
intangible, and by its very nature, software is not fixed; its perpetual existence and access by the public relies
upon private persons hosting the code on private servers, and anyone may alter the software. Second, software
is not “ordinarily provided at public expense.” It is not something ordinarily constructed by public bodies for
use by members of the public. Third, anyone can appropriate it or portions of it for nonpublic uses. For instance,
private persons can use it for nonexempt purposes. Finally, public works must serve a community.

In Jacobsen v, Katzer, the court recognized that free and open software licenses are used by “software engineers
to dedicate certain works to the public” and Rev. Rul. 71-29, recognized that purposes beneficial to the
community have been deemed charitable. Complete public ownership is an essential tax characteristic of
“public works” within that term's meaning under IRC Section 501(c)(3). Since you retain the copyrights for
your open-source software, you do not satisfy the essential public ownership requirement of public works.
Under copyright law, dedicating certain works to the public appears to include mere licensing to the public that
does not divest the copyright holder of all right, title, and interest to the work.

Because open-source software fails the essential tax attributes of public works, you do not qualify for
exemption under IRC Section 501(c)(3) as an organization erecting or maintaining public buildings,
monuments, or works within the meaning of Treas. Reg. Section 1.501(c)(3)-1(d)(2).

The Creation of Open-Source Software Does Not Further Educational Purposes
You claim you are developing and maintaining open-source software and will be providing technical guidance
and community support in your forums. Treas. Reg. Section 1.501(c)(3)-1(d)(3) defines educational as the
instruction or training of the individual for the purpose of improving or developing their capabilities, or the
instruction of the public on subjects useful to the individual and beneficial to the community. While you may
conduct some activities with educational aspects, you are not operated exclusively for exempt purposes, because
you are operated for substantial nonexempt purposes. Unlike the organizations in Rev. Rul. 65-2, Rev. Rul. 66-
179, and Rev. Rul. 66-255 which provided instructional training, lecture, workshops, exhibits and presentations,
you primarily develop and distribute open-source software.

Conclusion
Based on the foregoing, we have determined that you were formed for the purpose of creating, developing, and
publishing a specific product. You are operating for substantial non-exempt purposes. In addition, you do not
further a scientific purpose, do not serve a charitable purpose, serve a charitable class, are not a public work,
and do not further an educational purpose as described in IRC Section 501(c)(3). Therefore, you do not qualify
for exemption under Section 501(c)(3).



                                                                                       Letter 4034 (Rev. 01-2021)
                                                                                       Catalog Number 47628K
                                                          7


If you agree
If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from
you within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don’t agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:
    • Your name, address, employer identification number (EIN), and a daytime phone number
    • A statement of the facts, law, and arguments supporting your position
    • A statement indicating whether you are requesting an Appeals Office conference
    • The signature of an officer, director, trustee, or other official who is authorized to sign for the
      organization or your authorized representative
    • The following declaration:
      For an officer, director, trustee, or other official who is authorized to sign for the organization:
      Under penalties of perjury, I declare that I have examined this request, or this modification to the
      request, including accompanying documents, and to the best of my knowledge and belief, the request
      or the modification contains all relevant facts relating to the request, and such facts are true, correct,
      and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we’ll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we’ll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

       U.S. mail:                                       Street address for delivery service:

       Internal Revenue Service                          Internal Revenue Service
       EO Determinations Quality Assurance               EO Determinations Quality Assurance
       Mail Stop 6403                                    550 Main Street, Mail Stop 6403
       PO Box 2508                                       Cincinnati, OH 45202
       Cincinnati, OH 45201



                                                                                        Letter 4034 (Rev. 01-2021)
                                                                                        Catalog Number 47628K
                                                        8

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you’ve tried but haven’t
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

                                                            Sincerely,




                                                            Stephen A. Martin
                                                            Director, Exempt Organizations
                                                            Rulings and Agreements




                                                                                      Letter 4034 (Rev. 01-2021)
                                                                                      Catalog Number 47628K