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IRS Looking at Google/Mozilla Relationship 261

Posted by CmdrTaco
from the can't-imagine-why dept.
ric482 writes "With the release of the Mozilla Foundation's 2007 financial report, questions have been raised by the IRS, who are due to perform an audit on the non-profit organization behind the massively popular Firefox browser. Last year, the Foundation received $66 million of its total $75 million revenue (88 percent) from search engine maestros Google, so the IRS are looking for blood over the organization's tax exempt status. Back in 2006, Mozilla got $59.5 million from Google — around 85 percent of the organization's revenue. Google and Mozilla are part of a 'you scratch my back, I'll pay your bills' sort of agreement, with the Google search bar firmly placed in the toolbar, and on the default homepage. Things were a bit rocky a couple of months back when Google unveiled the Beta-run of its Chrome browser, but Mozilla and Google hugged it out and sealed a deal that will last for another three years. That deal will expire in November 2011."
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IRS Looking at Google/Mozilla Relationship

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  • by plover (150551) * on Thursday November 20, 2008 @09:48AM (#25831389) Homepage Journal

    Why not blame Microsoft? Maybe they filed a complaint with the IRS.

    Unleash the conspiracy theories!

    • This would be the Microsoft who have a Browser that has an MS search bar embedded ... but that's OK because it's the same company?

      Perhaps they should look at the Bill and Melinda Gates foundation, it gets all it's money from one source ....?

      • Re:Blame Microsoft (Score:5, Insightful)

        by pipatron (966506) <pipatron@gmail.com> on Thursday November 20, 2008 @10:38AM (#25831871) Homepage

        but that's OK because it's the same company?

        Exactly. The issue here is that Mozilla Foundation is a non-profit organization, but Google clearly is not. Presumably IRS could be interested in exactly how close ties they have.

        • Where's the smoke? (Score:5, Insightful)

          by Dare nMc (468959) on Thursday November 20, 2008 @11:13AM (#25832275)

          Since Google is a profitable entity isn't this tax neutral to google? IE if Google and mozilla merged, and Google spent the same amount on development, and giving as mozilla does, google would have the same profit, and thus pay the same taxes. The only difference would be some of the last 15% (non google contributions.) Since individuals can write off gifts to Mozilla foundation, but not to google then that's the money the IRS is chasing, not googles portion of the pie.

          • Re: (Score:3, Insightful)

            by plover (150551) *
            Perhaps Larry and Sergey are trying to write off donations to the Mozilla Foundation, and the IRS is examining if that's a bit too close to home.
            • Re: (Score:2, Informative)

              by Anonymous Coward

              Perhaps Larry and Sergey are trying to write off donations to the Mozilla Foundation, and the IRS is examining if that's a bit too close to home.

              Donations to some kinds of non-profits are deductible, but not all.

              http://en.wikipedia.org/wiki/501(c) [wikipedia.org]

              Moreover, it might appear to the IRS that the Mozilla Foundation is under the control of Google.

          • Since Google is a profitable entity isn't this tax neutral to google?

            If Mozilla loses its tax exemption then Google would have to contribute a lot more to give the same amount of money.

          • Re: (Score:3, Insightful)

            by AmberBlackCat (829689)
            Maybe they think, rather than donating to a non-profit, Google is actually paying for ad space in the browser. And that would mean Google shouldn't be using the donation as a tax deduction. And maybe, depending on where that money ends up, they would question rather Mozilla is really acting as a non-profit.
        • by fugue (4373) on Thursday November 20, 2008 @11:47AM (#25832769) Homepage

          Exactly. The issue here is that Mozilla Foundation is a non-profit organization, but Google clearly is not. Presumably IRS could be interested in exactly how close ties they have.

          Yeah, but doesn't Google qualify for tax-exempt status as a religious organisation?

      • Re:Blame Microsoft (Score:5, Interesting)

        by Richard_at_work (517087) <richardprice@@@gmail...com> on Thursday November 20, 2008 @10:40AM (#25831903)
        I seem to remember that after a new IE7 install, I get asked if I want to switch search engine providers (among a whole load of preferences on first use) - but I don't get asked the same after a new FireFox install...
        • Re:Blame Microsoft (Score:4, Insightful)

          by div_2n (525075) on Thursday November 20, 2008 @11:18AM (#25832359)

          Microsoft is a for-profit business with it's own search engine division and provides a product that could drive revenue to that business.

          The Mozilla Foundation is a non-profit organization that provides financial support to the open source Mozilla project that has a product that drives revenue to Google in a deal inked where they have exclusive rights to being the default during installation in return for donating to the Mozilla Foundation.

          I just don't see how the striking difference between those two scenarios could be more plain. I'll boil it down for those that can't:

          Internet Explorer/Microsoft is a self-interest driven scenario.

          Firefox/Mozilla/Google is a mutually beneficial scenario where one party is a business and the other is a non-profit.

          As to how this answers your question--remember that Microsoft was convicted of being a Monopoly in the past. Neither Google nor The Mozilla Foundation suffers that burden.

        • Re: (Score:3, Insightful)

          by The_Wilschon (782534)
          On the other hand, if you look at the search box, you will see that there is a down arrow just to the right of the google logo at the left end of the box. If you click on this arrow, you will find a default list of search engines. If you select one of these, then it will subsequently become your default search engine. You can also add searches to this list at any time. Heck, you can remove the google search from the list entirely if you want. Frankly, when changing search engines is that easy and obvio
        • Re: (Score:3, Informative)

          by lysergic.acid (845423)

          because Firefox isn't annoying. Firefox doesn't have a single "search engine provider." it knows that people often use more than one search engine. and if i want to change my homepage i can just go to Tools->Options.

          if i want to add/edit my search tools i can go to "Manage Search Engines." or i can simply right click on the search box on any site i want and click "Add a Keyword for this Search" to add a search keyword. it's less intrusive and more convenient than being forced to go through some stupid se

  • Laundering (Score:4, Funny)

    by Swizec (978239) on Thursday November 20, 2008 @09:48AM (#25831391) Homepage
    It's true then! Google is really an evil Mafia-type organizations hence the quick rise to popularity and Mozilla is their money laundering machine!

    The gig is up guys!
    • by mcgrew (92797) *

      I smell fish.

      Does the IRS investigate other tax-exempt nonprofits that get large contributions from corporate donors? WHY are they investigating Mozilla?

      I guess I have to RTFM.

  • Google search bar? (Score:5, Interesting)

    by drapeau06 (1010311) on Thursday November 20, 2008 @09:49AM (#25831411)

    My version of Firefox just has a regular "search bar" that defaults to Google.
    If I want another search, e.g., AbeBooks.com, I just change it to that. Does it become an "AbeBooks.com search bar" then?

    • Yes, because you'd be searching AbeBooks when you typed in it and pressed enter.

      • by theaveng (1243528)
        He was talking about the default setting. Mine was originally Google, but now Firefox defaults to Verizon. Apparently his defaults to Abebook's search.
  • Link? (Score:5, Insightful)

    by VisualD (1144679) on Thursday November 20, 2008 @09:50AM (#25831431)
    Would it kill you to put a link in there somewhere?
    http://www.mozilla.org/foundation/documents/mf-2007-audited-financial-statement.pdf [mozilla.org]
  • by AlphaZeta (1356887) on Thursday November 20, 2008 @09:52AM (#25831445) Homepage
    To me, there shouldn't be much a fuss about big corporates supporting open source. In fact, I think there should be more involvement (financially) for those big companies who no doubt have benefited from the open source community. As long as the licensing remains open source, everything is transparent...
    • by TheRaven64 (641858) on Thursday November 20, 2008 @10:05AM (#25831569) Journal
      This money isn't exactly supporting open source. It goes to the Mozilla Foundation, which employs a few developers, but most of the money remains unspent and a big chunk goes on advertising and paying board members.
      • Re: (Score:3, Informative)

        by VisualD (1144679)
        Not quite unspent, they have $68,847,453 invested in various areas (common stock, bonds etc...).
        Marketing is not that big of a chunk (relatively speaking) at $6,332,459 (compared to $20,000,000 on development).
        • by TheRaven64 (641858) on Thursday November 20, 2008 @11:01AM (#25832133) Journal

          So, 72% invested, 6.7% in marketing, and 21% on development? Or, to put it another way, a third as much spent on marketing as on development? I can't think of many companies (big pharmaceuticals excepted) that have this high a ratio of marketing to product development spending.

          It's probably not a bad idea that they're spending less than a third of their income, since it means that they can keep up this rate of expenditure during several years of economic down-turn irrespective of what their income does, but it does mean that, at the moment, only 21Â of every dollar that Google is paying to the foundation actually goes to improving the browser. With this in mind, developing their own browser probably made a lot of commercial sense.

          • by LordNimon (85072) on Thursday November 20, 2008 @12:06PM (#25833095)
            The problem I have with it is that there are thousands of bugs opened against Firefox, Seamonkey, Thunderbird, etc that have been open for years that don't get addressed because there aren't enough developers. The Mozilla foundation should be using those millions of dollars to hire programmers (especially in this economy) to fix those bugs and add those long sought-after features. The last thing they should be doing is investing in the stock market!!!!!!!!!
  • Soooo (Score:5, Insightful)

    by zifferent (656342) on Thursday November 20, 2008 @09:54AM (#25831465)
    They give away the browser and spend all of their revenue on development. So, how much taxable profit did the Mozilla foundation make anyway? The IRS has nothing to gain from this. I smell a rat closeby!
    • Re:Soooo (Score:4, Insightful)

      by Andr T. (1006215) <(andretaff) (at) (gmail.com)> on Thursday November 20, 2008 @09:57AM (#25831495)
      There's a lot of money there. I think audits on those cases are common and I guess there's nothing to be afraid of.
    • Re: (Score:2, Insightful)

      by Dun Malg (230075)
      They're looking at the big chunk of cash Google gave them and trying to find a weasel way to say that it was Google paying them in exchange for "bundling" the search bar. It's semantic bullshit, but the IRS thinks they might be able to get money out of it, so they're going for it anyway. The IRS is worse that patent trolls.
      • Re:Soooo (Score:5, Interesting)

        by jellomizer (103300) on Thursday November 20, 2008 @10:04AM (#25831565)

        Or... They are just doing their job and investigating possible suspicious activities. If Microsoft did the same thing you would be all up in arms on how Microsoft is trying get out of paying more taxes. But Google with Mozilla, that has to be different. Innocent until proven guilty, they are investigating it as it looks fishy but that is.

        • It's guilty when proven guilty, and MS have been found guilty enough times, in and out of court.

          Convicted abuser of a monopoly position
          Breaking windows for competitors products
          Holding back on interopability docs
          Special funding related to the SCO debacle
          GPL is "viral"
          Claims like "Linux breaches loads of our patents"

          etc etc

          Sam

      • by elrous0 (869638) *
        Google was not only paying them, it was basically buying the company. Pointing out that 88% of Mozilla's entire revenue came from Google alone and that Mozilla repaid this by bundling Google into all the defaults and the toolbar is far from "semantic bullshit." Now personally, I don't think there is anything wrong with that. But, then again, I never thought there was anything wrong with MS bundling internet explorer with Windows either.
        • Re: (Score:3, Insightful)

          I don't see anything wrong with it either. There are many instances of charities doing these kind of partnerships. For example the red cross sells its logo to different companies. In fact Johnson&Johnson is suing the red cross for using the red cross trademark in the same market as they are (bandaids, first aid kits, etc.).

          And I'm not a big microsoft fan AT ALL but I do see that you really can't condemn microsoft for bundling IE, WMP, etc. with their OS. It seems rather logical and their really isn't an

      • They're looking at the big chunk of cash Google gave them and trying to find a weasel way to say that it was Google paying them in exchange for "bundling" the search bar. It's semantic bullshit, but the IRS thinks they might be able to get money out of it, so they're going for it anyway. The IRS is worse that patent trolls.

        Yeah, and I'm sure the google search bar would be the default in the case of Google not spending another dollar with Firebird, huh? Mosaic wouldn't be going to another company looking for money.

        That whole default search thingy was just a fluke.

        BULLSHIT.

        Google pays them to be the default search engine. Don't think so, look at the stink in the archives about Google NOT being the default in Opera, instead going to Ask.com.

        --Toll_Free

    • They don't spend anything like all their money on development. Last year they spent about 10% of their income on development, some more on advertising and paying the board, and kept the rest in their war chest. They made a large profit, but didn't pay tax on it.
    • by Bob-taro (996889)

      So, how much taxable profit did the Mozilla foundation make anyway? The IRS has nothing to gain from this. I smell a rat closeby!

      But Google *is* for profit. And Google arguably paid for Mozilla to put in some "branding" in the form of a default Google homepage and a Google search bar. If Google had paid that money to a for-profit entity, the for-profit entity would have had to pay tax on it (if they were profitable that year). Mozilla gets out of paying corporate income tax because they ostensibly do what they do for the common good. If they are doing things that solely benefit their big contributors, that calls their tax exempt

      • Yeah, you have a good idea.

        Remove corporate income tax. Let the common people shoulder it.

        --Toll_Free

    • They give away the browser and spend all of their revenue on development. So, how much taxable profit did the Mozilla foundation make anyway? The IRS has nothing to gain from this. I smell a rat closeby!

      Profit (income is the better term) is not limited to money earned off of selling products. You can argue that the money from Google was a gift (gifts are not taxable to the recipient but are to the donor, with a small exclusion) but since Google is most likely earning indirect benefits from giving the money to Mozilla, it shouldn't qualify as a gift. It looks more like payment for a service.

  • by Andr T. (1006215) <(andretaff) (at) (gmail.com)> on Thursday November 20, 2008 @09:54AM (#25831467)
    ...and not after some other fictional 'non-profit' organizations [wikipedia.org]?
  • Wow (Score:4, Insightful)

    by elrous0 (869638) * on Thursday November 20, 2008 @10:00AM (#25831531)
    85% of Mozilla's funding comes directly from Google?!? For all practical purposes, Google basically owns them. No wonder Mozilla was so forgiving of Chrome.
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      85% of Mozilla's funding comes directly from Google?!? For all practical purposes, Google basically owns them. No wonder Mozilla was so forgiving of Chrome.

      Or it might be that Mozilla likes the idea of friendly, standards-compliant competition which steals away large chunks of the Internet Explorer market share based on the Google name. But I'm just an AC, what do I know...

    • Re: (Score:2, Insightful)

      by Eighty7 (1130057)
      http://www.google.com/trends?q=firefox%2C+chrome [google.com]

      That is why Mozilla was so forgiving of Chrome. Anybody with half a brain could have seen that.
    • The advent of Chrome makes it hard to make the case that Mozilla and Goggle are too closely tied, or the same entity. I suspect someone is just curious about a non-profit that is generating profits.

      I tried reading the report, but still couldn't quiet tell what Mozilla's expenses are.

      • by elrous0 (869638) *
        If you get 88% of your entire budget from one entity, you're pretty closely tied.
        • Re: (Score:3, Interesting)

          by olddotter (638430)
          Have any idea how many companies get 75% or 80% of revenue from Walmart? Look at how "connected" they are.
  • Using the money (Score:3, Insightful)

    by Thanshin (1188877) on Thursday November 20, 2008 @10:06AM (#25831573)

    Shouldn't the IRS be more concerned about how is mozilla spending that money than where it comes from?

    If a "save the children" non-profit organization changed their name to "Google saves the children" and Google donated $100 million, they should lose the tax exemption?

    "Non-profit" isn't about how much money enters the organization but how much of it is used in pushing the agenda forward. If they're spending the millions of dollars to make a better free browser, they should still be tax exempt.

    If they suddenly started using that money to buy sport cars for every programmer, they should pay taxes even if Google gave them just two dollars.

    • Re: (Score:2, Insightful)

      by Toll_Free (1295136)

      The problem with your analogy is that Mozilla DIDN'T spend the money. That, in and of itself, is for profit.

      If you have money left at the end of the year, it's profit. No other way to put it.

      Google put millions into a non profit, got tax shelter for it. Non-profit DOESN'T spend all the money, non-profit is GOING to get investigated, since they ACTUALLY TURNED A PROFIT.

      To get Google as well, they will have to prove collusion. However, if Mozilla has dollars left at the end of they year, that's classified

  • That's weird (Score:4, Interesting)

    by mosb1000 (710161) <mosb1000@mac.com> on Thursday November 20, 2008 @10:08AM (#25831587)

    What do they plan to tax? Their revenues? Is it just that whenever there's money anywhere the IRS thinks uncle sam should get a share of it? Are they claiming that Firefox is some kind of tax shelter? I don't think that's the case. . .

    How come there is no story associated with this summary?

    • Re: (Score:3, Informative)

      by east coast (590680)
      Actually, they're probably going to review Mozilla's tax-exemption status. I don't know what the law is on this but I imagine that there are implications of having such a large chunk of funding come from one entity and having the same entity glean a clear and direct benefit from the not-for-profit organization.
      • by mosb1000 (710161)

        Many non-profits obtain all their money from a single source (the Bill and Melinda Gates foundation, for example). Any monetary benefit gained by Google would already be taxed. I guess that the only reason they're interested is because Google makes money. . . but I don't think that means they can't be a legitimate source of funding.

        • Re:That's weird (Score:4, Informative)

          by TheRaven64 (641858) on Thursday November 20, 2008 @11:15AM (#25832303) Journal

          As I recall, the problem is not a single source, but that it's a single corporate source. Certain classes of tax-exempt status requires a certain percentage of donations to come from individual contributions. This was a problem for the FreeBSD foundation about a year ago. They received a lot more corporate donations than they were expecting, so had to quickly raise a lot of individual contributions before the end of the tax year to retain their non-profit status.

          The rules make sense, since if a corporation could be the sole donator to a tax-exempt organisation then every corp would just set up a foundation that received all of its profit, pay no tax, and have the foundation own all of its assets.

        • Any monetary benefit gained by Google would already be taxed.

          Unless Google also claimed a write-off for the donation, in which case the IRS's interest is understandable.

      • Not to mention, Google gets a tax break from the Mozilla donations.

        Mozilla hoardes the money, it's not being taxed or used.

        That's a clear-cut violation of tax law, involving a non-profit. Google paid enough into a non-profit so that they actually SHOWED a profit.

        Let this be a lesson to donaters and donatees in the future (like we can all donate millions, right???). If you're going to donate, at least ensure it's not going to generate a profit for the non-profit.

        --Toll_Free

    • My suspicion is that they are going to review two things. One, whether or not Google can claim a deduction for the money given to Mozilla. Two, whether or not Mozilla should be filing a tax return (and possibly paying taxes if they would show a profit under tax law). On that second one, depending on what they find, that money from Google might qualify as income.
  • Usually, people use Google to look at relationships...really closely.

  • by MikeRT (947531) on Thursday November 20, 2008 @10:22AM (#25831719) Homepage

    The law is very rigid today. To start an organization, you have to jump through a lot of hoops and hurdles to be in compliance with everything from labor practices, to filing the right corporate status, to paying the right taxes. It would be a lot easier for society to find creative ways to reorganized itself if there were no corporate taxes.

    Besides, corporate taxes are asinine. Not only are the costs transferred to the public in the form of higher costs and lost employment opportunities, most corporations have successfully figured out how to avoid paying most taxes anyway. It'd be better to just cut our losses, tighten up spending, and tax only individuals.

    • by deraj123 (1225722) on Thursday November 20, 2008 @11:35AM (#25832571)
      I love this idea. As an added benefit, voters would actually be directly exposed to the amount of their income that ends up going to the government, rather than having it hidden behind slightly higher prices at every level.
    • Counter thought (Score:3, Interesting)

      by snowwrestler (896305)

      I generally feel the same way you do. Companies are basically pass-through entities for personal spending and wealth, so why tax them. And from a philosophical point of view, corporations can't vote so why should they be taxed? We're a nation of people.

      However I try to keep my mind open to challenge and I saw a recent argument the other way that was intriguing. Basically it made the point that since high corporate taxes penalize profit-taking, they force money to stay in the business, which drives improveme

  • Basically (Score:4, Informative)

    by Anonymous Coward on Thursday November 20, 2008 @10:25AM (#25831753)

    Wow, that's a pretty slanted writeup by ric482...

    Back in 2005, before the Mozilla Corporation was created as a for-profit organization, the deal with Google went through the Mozilla Foundation. There was worry that the income derived then would need to be reviewed by the IRS (a large part of the reason the Mozilla Corporation was created in the first place). Mozilla set aside a large part of that income in case that happened and the IRS would end up disagreeing with the status of that income.

    The review of that income is basically happening now (and the IRS is probably also looking at what happened since).

    Mitchell says it like this [lizardwrangler.com]:

    In 2005 the Mozilla Foundation established a "tax reserve fund" for a portion of the revenue the Foundation received that year from Google. We did this in case the IRS (the "Internal Revenue Service," the US national tax agency) decided to review the tax status of these funds. This turns out to have been beneficial, as the IRS has decided to review this issue and the Mozilla Foundation. 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.

    (Lots of other interesting information in that blog entry, too.)

  • by russotto (537200) on Thursday November 20, 2008 @10:33AM (#25831819) Journal

    The IRS seems to have the usual paradigm a bit confused.

    1) Find one of the few sectors making a profit
    2) Take them down
    3) ????

  • Nothing unusual (Score:3, Informative)

    by ivoras (455934) <ivoras&fer,hr> on Thursday November 20, 2008 @11:32AM (#25832513) Homepage

    It's just a way to make sure one company (Google in this case) isn't using a charity (Mozilla in this case) for illegal purposes, like plain old tax evasion. If it comes to that, Mozilla simply needs to reduce the amount of money accepted by Google or rally the community to give a significant amount of money in the form of small individual donations, so the ration of Google vs others comes down.

    If it seems hard to rally something that will rival Google's $66 million, a useful frame of perspective might be that the FreeBSD Foundation is working with several times the Mozilla's amount: http://www.freebsdfoundation.org/donate/ [freebsdfoundation.org] and they're managing to deal with it. (OTOH FreeBSD itself brings much money to the top donor companies so there's incentive to do it. Yes, FreeBSD developers are happy with this deal that comes from BSDL.)

    • by ivoras (455934)
      Argh, I managed to virtually misplace several orders of magnitude there - FreeBSD Foundation's goal is $300,000 not $300,000,000 :/ - please just ignore the last part of the post.
  • Google and Mozilla are part of a 'you scratch my back, I'll pay your bills' sort of agreement with the Google search bar firmly placed in the toolbar, and on the default homepage.

    Actually it's more like an "I'll pay your bills and even scratch your back a little as well" sort of agreement. Firefox had Google as the default selected search engine since before they made any agreement and before they got any money from Google, simply because the Firefox developers happened to think that Google was the most use

    • Self-dealing (Score:3, Informative)

      by slew (2918)

      I'm guessing that if the IRS determines that the Mozilla foundation is being operated so that there is significant self-dealing with their substantial-contributors (e.g., google), the mozilla foundation will likely get penalized for this. This would be like if microsoft contributed to a charity and that charity turned around and bought and excessive amount of microsoft software. Here's the IRS page on this subject.

      http://www.irs.gov/charities/charitable/article/0,,id=96114,00.html [irs.gov]

      In addition, there are sev

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