Subject: Re: Upcoming: further thoughts on where from here

From: [email-masked] (scott bradner)
Date: Tue, 21 Sep 2004 20:33:07 -0400 (EDT)

High order bit:  To me Scenario C contains significant complexity and
risk when compared to Scenario O while providing, in my opinion, no
useful advantages.

some observations:
Both Scenarios depend on the development of a job description for an
admin director of some kind - as has been mentioned on this list by
others I do not think we are all that close to an understanding of what
this job entails.

Both Scenarios depend on the development of descriptions of the tasks to
be contracted for (email service, IETF clerk function etc) - imo, the
timing to accomplish this task is, at best, aggressively optimistic in
the Scenario C document considering the pace of the discussion to date. 

In both Scenarios I could see developing the job description 1st, doing
a job search and, assuming a reasonable candidate could be found, having
the person be hired by the ISOC with a mission to finish up the task
descriptions.  But I do not see it as likely that a description could be
agreed to, the job advertised, an appropriate person found, hired and be
available to start in less than 3 months

I would expect that it would take some time, a month or two, after the
person comes on board before final task descriptions would be ready (it
would seem to be quite important for the admin director to be involved
in finalizing the task descriptions since he or she would be responsible
for ensuring that the contractor(s) provide the services described.

To me that means we are well into the preparations for the "march"
meeting before we might be ready to issue the RFP(s).  That leads me to
the inescapable conclusion that Foretec must be retained to run that
meeting (and maybe the following meeting), and that retention should 
happen asap so that there is no confusion after the DC meeting.

The Scenario C document says that there are 3 prerequisites required
before the option of a corporation can be "considered viable at all"
	1/ IETF consensus on the plan
	2/ ISOC agreement on a support "contract"
	3/ assurance that a corporation would be tax exempt

re: 1/ Considering the level of participation in this discussion on the
IETF list I do not see how one could assert that there was IETF
consensus without an explicit discussion at an IETF plenary - I do not
think that just issuing a last call (as envisioned by the Scenario C
document) would be seen by about anyone as an adequate involvement of
the community.  

re: 2/ the use of the term "contract" to describe an agreement to be a
supporter feels a bit funny to me but, certainly, a common understanding
of the ISOC/IETF relationship would have to be reached (as I mentioned
before, I think there will be a lot of working out of details to come to
such a common understanding )  - it is true that a common understanding
of the relationship would also have to be developed in Scenario O But I
think that would be easier since Scenario O is more of an evolution of
our current relationship not inventing a new one out of whole cloth.

Also, the "contract," as envisioned in the Scenario C document, looks
like it boils down to "ISOC agrees to provide $75K/month."  That seems
to be a very unlikely contract - the ISOC needs to ensure that monies
that it donates are used for purposes that fit within the ISOC's bylaws
and tax exempt role.  I would expect that the ISOC would have to do a
bit more due diligence during the budget process than to blindly accept
the proposed budget numbers.

re: 3/ Of course, there can be no assurance that a corporation will be
tax exempt unless 1/ it already is, or 2/ the IRS rules that it is.
Scenario O covers the 1st case since the ISOC is already tax exempt.
The only way to be sure in Scenario C is to wait until the IRS acts and
that could be many months.  If the 3rd item is truly a prerequisite
then, even if we incorporated the IASF (not a name that rolls of the
tongue) next week the IRS might not rule until next summer.

bottom line: I see lots of risks, many of which are noted in the
document, with the Scenario C approach.  I also see a lot of unknowns
that would need to be worked out. - but on the other side I see nothing
in the Scenario C document that says what advantages there are in
following Scenario C that overcome the risks and unknowns.   In earlier
discussions on this list some of the proponents of the Scenario C
approach basically said that it would make them feel better to have
fewer bolts to blow if we ever decided to get a divorce from the ISOC.
I do not agree that it would take any less time under  Scenario C to
blow the bolts than what is described in Scenario O (considering the
fact that the IETF would have to develop a fundraising arm, far from an
easy task as the ISOC found out).

The Scenario C document more strongly leads me to the conclusion that
forming a separate corporation is the wrong way to go for the IETF.

That is not to say that I think the Scenario O proposal is perfect, I do
not and will have comments on that at a later time, but still the
conclusion is clear to me.

Scott

_______________________________________________
Ietf mailing list
[email-masked]
https://www1.ietf.org/mailman/listinfo/ietf

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From: John C Klensin <[email-masked]>
Date: Tue, 21 Sep 2004 23:50:39 -0400

(time to change the subject line enough to do some
differentiation)

--On Tuesday, 21 September, 2004 20:33 -0400 scott bradner
<[email-masked]> wrote:

> re: 3/ Of course, there can be no assurance that a corporation
> will be tax exempt unless 1/ it already is, or 2/ the IRS
> rules that it is. Scenario O covers the 1st case since the
> ISOC is already tax exempt. The only way to be sure in
> Scenario C is to wait until the IRS acts and that could be
> many months.  If the 3rd item is truly a prerequisite then,
> even if we incorporated the IASF (not a name that rolls of the

Scott (and others), 

Let me add one observation to this to complement Karl's
observation, but without his legal expertise and perspective.  

The assumption that tax exempt status will be both a sure thing
and quick is, IMO, symptomatic of some of the extreme and
unrealistic optimism in Scenario C.  I would describe many of
the points of that document as "if everything goes perfectly and
without a snag then wonderful results will occur".  Life is
sometimes not that way, indeed, it is rarely that way.   We can
hope for the best but should,  realistically,  design for the
worst or nearly-worst.

To take this one as an example, there are definitely cases in
which IRS approval of tax exempt status is nearly guaranteed and
usually comes quickly.  In my experience --and I have had some
experience with this-- one of those cases involves the term
"church" and  another involves an institution which is clearly
(and purely) educational in nature and that meets several other
conditions about, e.g., how money is handled and for what
purposes.  While some people behave toward the IETF as if it
were a religion, the base organization doesn't fall into either
category and a foundation (or equivalent) set up to service or
support it wouldn't either.  Karl or someone else who knows
should confirm this, but my impression is that, to qualify for
tax-exempt charitable status, it is not sufficient to be
non-profit: there are a number of other necessary conditions
about what one can or cannot do and, to the degree to which part
of the purpose of a standards body is to influence the market,
there are even some gray areas that would call for review and
interpretation.  That situation makes statements conditioned on
comments like "...the fairly clear non-profit nature of the
IETF" (Appendix C, paragraph 3) feel a little bit like
overconfident, misleading, handwaving.

Could we get lucky?  Yes.  Could we get really unlucky and see
either a two year (or more) delay or an outright rejection?
Also yes.  Does the nature of the critical path problems permit
us to risk waiting around for a few years to get a
determination?  Well, I suggest that, if it does, the problems
are not that critical (see my earlier notes about what the
problem is that we are trying to solve).   But to say, as
Appendix C does, "several months or even longer in some cases"
is, intentionally or not, seriously misleading about the
character and extent of that risk.  The third paragraph of
Appendix C then goes on to mention the possibility of an
"interim plan" until (!) tax-exempt status is granted.  But that
plan is not discussed and, given the other issues here, it seems
key if we are not willing to either move forward without the
"assurance that the corporation will have tax-exempt status"
that 2.2 requires or to be willing to delay solving an allegedly
critical-path problem until that status is granted.

Given all, or even a significant fraction, of the above, I don't
see how the approval sequence of 2.2 can possibly work.   No
amount of "consultation with legal counsel" can "assure"
tax-exempt status on any particular schedule.  Instead, such
consultation can do exactly what the document suggests, i.e.,
maximize the likelihood of its being granted.  Assuming we
actually care about solutions to the critical-path problems --
and I certainly hope that is the case-- I don't see how
consensus can validly be determined in the absence of either a
firm schedule for this process going into operation, or
tax-exempt status already being in place, or, perhaps, all of
the details of the "interim plan" being worked out (which, of
course, requires that there be such a plan and that an approval
mechanism for it be incorporated into 2.2).

So I don't see Scenario C as being a superset of Scenario O, or
of having any of the other relationships that have been
suggested.  I just don't see it as hanging together, at least as
now written.

    john

---

From: Harald Tveit Alvestrand <[email-masked]>
Date: Wed, 22 Sep 2004 05:59:02 +0200

Scott,

some meta-thoughts.....

> document) would be seen by about anyone as an adequate involvement of

I am not at all certain of that. In what way is 20 people arguing in front 
of a thousand people in a room more "community involvement" than the same 
20 people arguing in front of a thousand people on a mailing list?

Our tradition as IETF has been to declare that mailing list discussion is 
the final arbiter of consensus. If we need to abandon that principle for 
organizational matters, we leave ourselves in a situation where we can only 
make significant decisions at 4-month intervals; that is a theoretically 
defensible position, but sharply limits the scope of what we can hope to 
accomplish in any given timeframe.

> our current relationship not inventing a new one out of whole cloth.

I was told a number of times that "contract" is a term that is less likely 
to be misunderstood; at some times in some contexts, some people have 
claimed that an "MoU" is something that any of the organizations can 
unilaterally disregard and walk away from even if the document says it 
can't - that's an unreasonable platform on which to build a working 
relationship.
"Contract" brings the connotation of "binding promise".

> the proposed budget numbers.

I am hoping that if we get to negotiating the contract, ISOC will state its 
requirements for due dilligence. I can't imagine having a contract that did 
not allow for them.
WRT "blindly accept" - that's why I put in a proposed budget in July and an 
agreed budget in November.

> tongue) next week the IRS might not rule until next summer.

Being a bit facetious here, the only way to be sure the sun will rise in 
the morning is to wait for it to show up.
If we get an organizational charter that a tax attorney is willing to 
assure us "is likely to be accepted as a nonprofit", I (personally) think 
that the risk of the IRS acting irrationally is an acceptable risk, if we 
find that the scenario C solution is the one we want.

              Harald

---

From: Harald Tveit Alvestrand <[email-masked]>
Date: Wed, 22 Sep 2004 14:56:28 +0200

> (time to change the subject line enough to do some

good principle......

as I said on another thread, I think we should take competent tax advisor's 
advise on whether or not we can achieve this, and how fast (unless we 
dismiss the scenario for other reasons).

The two "interim plans" I have heard bandied about are:

- Start operation, but run the corporation in such a way that taxable 
profits (which would normally be used to build funds) is minimized, thus 
minimizing tax liability

- Incorporate, but don't transfer operations to the corporation until 
tax-excempt status has been granted.

I like the first one best, because it has the least impact on the other 
things that I want the reorganization to achieve, but I am not an US tax 
lawyer.....

One last note: The whole tax-excempt vs taxable issue is (I believe) 
exactly the same for operations organized as a subsidiary of ISOC as for 
opoerations organized as a separate corporation. That's one reason why 
Scenario O doesn't propose a subsidiary organization - that form seemed to 
commit the sin that Brian has warned us against: Complicating things and 
adding uncertainty for no easily visible gain.

                           Harald

---

From: John C Klensin <[email-masked]>
Date: Wed, 22 Sep 2004 10:44:46 -0400

--On Wednesday, 22 September, 2004 05:59 +0200 Harald Tveit
Alvestrand <[email-masked]> wrote:

>...
>> re: 3/ Of course, there can be no assurance that a
>> corporation will be tax exempt unless 1/ it already is, or 2/
>> the IRS rules that it is. Scenario O covers the 1st case
>> since the ISOC is already tax exempt. The only way to be sure
>> in Scenario C is to wait until the IRS acts and that could be
> Being a bit facetious here, the only way to be sure the sun
> will rise in the morning is to wait for it to show up.
> If we get an organizational charter that a tax attorney is
> willing to assure us "is likely to be accepted as a
> nonprofit", I (personally) think that the risk of the IRS
> acting irrationally is an acceptable risk, if we find that the
> scenario C solution is the one we want.

Harald,

I hope things are better in Norway and assume that they probably
are.  But the IRS does make decisions that are irrational or,
perhaps more accurately, reflect a version of reality that are
not always predictable even to experienced tax attorneys.  And
many of the rules require that one must presume and act as if
they will rule against you until they actually rule for you -- a
presumption of "acceptable risk" is, under some circumstances,
actually illegal.  The alternatives are, at best, really
impressive penalties.

The experience with ability to predict the rise of the sun has
been much better empirically, and also derives from principles
of physics that further strengthen the probabilities.

       john

---

From: Jeffrey Hutzelman <[email-masked]>
Date: Wed, 22 Sep 2004 10:50:01 -0400

On Wednesday, September 22, 2004 05:59:02 +0200 Harald Tveit Alvestrand 
<[email-masked]> wrote:

> the morning is to wait for it to show up. If we get an organizational
> charter that a tax attorney is willing to assure us "is likely to be
> accepted as a nonprofit", I (personally) think that the risk of the IRS
> acting irrationally is an acceptable risk, if we find that the scenario C
> solution is the one we want.

I think this and a number of other points made here gloss over a key point 
of which some of the participants may not be aware.

Under US law, there is a significant difference between "not-for-profit" 
and "charitable nonprofit".  The former status is relatively easy to 
obtain; the latter is much more difficult.  Only the "charitable" status 
makes you exempt from a variety of taxes, and only that status means that 
donations made to you are deductable for the donor under US income tax law.

-- Jeffrey T. Hutzelman (N3NHS) <[email-masked]>
   Sr. Research Systems Programmer
   School of Computer Science - Research Computing Facility
   Carnegie Mellon University - Pittsburgh, PA

---

From: Karl Auerbach <[email-masked]>
Date: Wed, 22 Sep 2004 09:37:36 -0700 (PDT)

On Wed, 22 Sep 2004, Jeffrey Hutzelman wrote:

> I think this and a number of other points made here gloss over a key point of 
> which some of the participants may not be aware.
>
> Under US law, there is a significant difference between "not-for-profit" and 
> "charitable nonprofit"....

It might be useful to add more precision.

In the US there are two levels from which laws affecting corporations 
arise, state and Federal.  Corporate structures are usually created under 
state law.

Many states of the US have laws that allow "non-profit" or even 
"charitable nonprofit".  Here in California, for example, there are 
several forms of non-profit: public-benefit, charitable, mutual benefit, 
religious, medical, etc.

And here in the US we have a lot of states - 50 of 'em - each with its own 
different corporations laws.

At the federal level there is yet another mountain of law, but we often 
end up talking about tax exemptions under Title 26 Section 501 of the US 
code.  That part of the tax code covers a lot of territory and is very 
complicated and full of subtle distinctions that trigger significant 
differences in treatment as well as imposing rather different kinds of 
limitations and obligations upon the entity that is seeking or obtained 
one or another of these exemptions.

So, when talking about these things we can avoid a lot of confusion if we 
try to be precise about specific state level conceptions of corporations 
and non-profitness and federal level conceptions of federal tax exemption 
and the benefits, limitations, and obligations that come from each.

I might add that one of the questions that ought to be raised, and it is a 
question that I'm certainly neither qualified to answer nor will I even 
attempt to answer, is whether the IETF ought to seek Federal tax exempt 
status at all.  Sometimes it may be better to simply file the papers, pay 
the tax money, and be free of many of the restrictions.

 		--karl--

---

From: Gene Gaines <[email-masked]>
Date: Wed, 22 Sep 2004 17:22:08 -0400

Karl,

2 cents.

Assuming IETF is going to set up a corporation and it is to be
created in the United States, it appears to me there are strong
reasons for incorporating as a non-profit, and further to obtain
tax-exempt status as a 501(c)(3) organization.

It appears to me that IETF qualifies for this status easily as
a technical, memberhhip organization, not operated for private
benefit, engaged in creating and publishing information freely
available without charge and in the public domain.

I spoke briefly with a U.S. Internal Revenue Service (IRS) expert
who told me informally that IETF appears to qualify easily for
non-profit, tax-exempt status.

If anyone is interested, I can provide several IRS rulings and
Shephard-qualified court decisions for similar organizations.

The forms to make application are not burdensome, and can be
completed by any competent lawyer (knowledgeable of non-profit
law) and should be part of the process of setting up any IETF
corporate entity.  I emphasize:  Setting up the IETF entity to
properly qualify for non-profit and 501(c) tax-exempt status
_must_ be considered at the time the corporate charter is set up.

Note that the IRS processing time for obtaining 501(c)(3) status
currently is 120 days; this can be shortened by invoking special
circumstances; the effective date will be retroactive to the
date the entity filed for incorporation.  Despite all the folk
tales, the U.S. IRS is not capricious in such cases, and a
qualified lawyer can state with certainty whether the IETF does
or does not qualify. I'm not a lawyer, but am sure the IETF does
qualify.

Warning.  IETF people travel between countries to attend
meetings.  Security and border restrictions are becoming
increasingly restrictive in the U.S. and many other countries.

I suggest it is imperative that, if the IETF does incorporate,
it obtain non-profit and I recommend tax-exempt status.  It is
important -- critical -- the IETF attendees be seen as traveling
to attend a technical meeting conducted by a non-profit
organization.  Remember the trouble with U.S. people traveling to
Korea for IETF 61?  (We obtained special papers from the Korean
embassy in Washington by claiming the IETF to be part of ISOC,
and ISOC has non-profit status.

It is generally true that visitors to a country for tourism or to
attend non-profit technical meetings are subject to substantially
less restrictions and less paperwork than those traveling for
business purposes.

Further, it is so very important the IETF be transparent, and
its financial dealings be open.  The annual filings required of
U.S. non-profit tax-exempt organizations will provide much of
that transparency.

Last question.  What impact will incorporation, either the
entire IETF organization or only a headquarters activity, have
on ISOC and the support it provides to the IETF?

ISOC is non-profit, 501(c)(3) tax-exempt, incorporated in the
District of Columbia.

I suggest it would be a serious mistake for the IETF not to
obtain the same status.

Gene Gaines
[email-masked]
Sterling, Virginia USA

--

---

From: Karl Auerbach <[email-masked]>
Date: Wed, 22 Sep 2004 14:49:25 -0700 (PDT)

> I suggest it would be a serious mistake for the IETF not to

There are many kinds of 501(c) exemptions.  They all come with different 
kinds of chains that impose limits on what the organization can do and 
impose affirmative duties.  Simply jumping into one category without 
understanding the nature and form of those chains could lead to a kind of 
organizational buyer's remorse.

Whether one considers the application process easy (or hard), fast (or 
slow), or the IRS to be capricious (or not), it isn't something to be 
undertaken lightly or without understanding the ramifications.  The IRS is 
one of the world's great bureaucracies; I know attorneys whose entire 
practice is focused on just small parts of the US tax code and small parts 
of that bureacracy.

The choice of Federal excemption also may have impact on the liability (or 
rather on the limitation of liability) of unpaid Directors and officers 
both on the basis of State laws that recognize certain protections for 
certain 501 categories (and not for others) and also under Federal laws 
that may provide some protection for volunteer (unpaid) directors under 
some circumstances.

Many have, of course, navigated the maze and been happy with the results. 
And some entities, after having experienced life as a 501(c)(3) have 
discovered the limitations too binding and have changed their status.

The IETF ought to move forward with knowledge and understanding.  It ought 
not go forward blindly and with say 501(c)(3) or bust without knowing 
fully what that means and implies.

The same goes for chosing the state of incorporation and the form under 
that state's laws.

(There is, of course, the option of creating several different legally 
cognizable entities, each shrink-wrapped with its own choice of 
jurisdiction and form.  But that could lead to a situation in which there 
is not one IETF but several that drift in divergent directions.)

I'm not arguing against the 501(c)(3) status - I have neither an opinion 
nor enough knowledge to make an informed choice.  I'm merely noting that 
the issue is complex and involves hard choices that ought to be made with 
knowledge of the tradeoffs.

 		--karl--

---

From: Gene Gaines <[email-masked]>
Date: Wed, 22 Sep 2004 19:49:03 -0400

Karl,

Good thoughts.  I agree with all.

I suppose the reason for my long writing was to say that 501(3)(?)
status should not be feared, the process is predictable, and I
think you will find the IRS actually will assist in the process.
In any event, requires a good non-profit / tax lawyer to evaluate
and explain the consequences.  But getting the status is easy.

Gene

--

---

From: Brian E Carpenter <[email-masked]>
Date: Thu, 23 Sep 2004 09:54:49 +0200

So, as I see it, we can choose scenario C which includes
this bureaucratic work, as well as many other pieces of
bureaucratic work, or we can choose scenario O in which all
this work was done ten years ago.

    Brian

Karl Auerbach wrote:
> understanding the nature and form of those chains could lead to a kind 
> of organizational buyer's remorse.
> 
> undertaken lightly or without understanding the ramifications.  The IRS 
> is one of the world's great bureaucracies; I know attorneys whose entire 
> practice is focused on just small parts of the US tax code and small 
> parts of that bureacracy.
> 
> The choice of Federal excemption also may have impact on the liability 
> (or rather on the limitation of liability) of unpaid Directors and 
> officers both on the basis of State laws that recognize certain 
> protections for certain 501 categories (and not for others) and also 
> under Federal laws that may provide some protection for volunteer 
> (unpaid) directors under some circumstances.
> 
> Many have, of course, navigated the maze and been happy with the 
> results. And some entities, after having experienced life as a 501(c)(3) 
> have discovered the limitations too binding and have changed their status.
> 
> The IETF ought to move forward with knowledge and understanding.  It 
> ought not go forward blindly and with say 501(c)(3) or bust without 
> knowing fully what that means and implies.
> 
> jurisdiction and form.  But that could lead to a situation in which 
> there is not one IETF but several that drift in divergent directions.)
> 
> the issue is complex and involves hard choices that ought to be made 
> with knowledge of the tradeoffs.
> 
>         --karl--
> 
> 
> 
> 
> 
>

---

From: [email-masked] (Kai Henningsen)
Date: 23 Sep 2004 08:45:00 +0200

> (time to change the subject line enough to do some

... but presumably this was the wrong change?

MfG Kai

---

From: [email-masked] (Kai Henningsen)
Date: 29 Sep 2004 23:04:00 +0200

> It appears to me that IETF qualifies for this status easily as

But we're not interested in this status for the IETF.

We don't want to incorporate the IETF.

What is under discussion is incorporating a separate organization whose  
mission is supporting the IETF.

> a technical, memberhhip organization, not operated for private

Neither the IETF, nor this possible new organization, has any (formal)  
membership.

> non-profit, tax-exempt status.

Well, given how far your model seems from the one discussed here, that  
seens worth nothing whatsoever.

MfG Kai

---

From: Gene Gaines <[email-masked]>
Date: Thu, 30 Sep 2004 03:39:12 -0400

Kai,

We do not understand each other at all.

My email of a week ago was addressed to one simple point:

Fear expressed by a few people that obtaining non-profit U.S.
501(c)(3) status for either the IETF or a separate organization
supporting be IETF could be difficult and perhaps not possible.

I was _only_ stating that such fear is unfounded.

I do confess that I made an attempt to provide some information
to show that this fear is unfounded.

Drop this issue and get back to productive discussion.

Gene Gaines

On Wednesday, September 29, 2004, 5:04:00 PM, Kai wrote:

> [email-masked] (Gene Gaines)  wrote on
> 22.09.04 in <[email-masked]>:

--