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Mozilla's Google millions - a tax dodge?

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When the Mozilla Foundation turns to the public for money, it happily assumes the mantle of a penniless public institution asking for charity. Over 10,000 FireFox fans drew deep into their own pockets to place an expensive two-page advertisement for the browser in the New York Times 15 months ago.

But the Mozilla Foundation's commercial wing, Mozilla Corp., is awash with cash, its accounts reveal. It's just that in the spirit of openness and full disclosure - it er, ... doesn't like to talk about it.

Mozilla Corporation director Chris Blizzard coyly referred to the largesse last week in a weblog post.

"Money is one of the last things we worry about, and people shouldn't get hung up on the numbers, except to realize that it gives us options," wrote Blizzard. But earnings figures of $72 million were "not off by an order of magnitude".

But there's a broader, social dimension to this that's rarely discussed. Both Mozilla and now Opera are able to develop their browsers, and give away them away for free, because of Google's kindness.

Last year, Opera, a publicly-traded company, dropped the $39 fee for the ad-free version of its desktop browser. It said it was able to do this by striking a deal with Google for referrals.

Google represented 76 per cent of Mozilla's income in 2004. As recently as last June, Opera CEO Jon von Tetzchner was referring to Mozilla's "rich sugar daddy" in interviews ... before striking the same kind of deal with Google in the Fall.

Just as the PC giants Intel and Microsoft sewed up their distribution channels - the OEMs - using MDF (Market Development Funds) and discriminatory pricing, Google too realizes the importance of securing its clickstream. Mozilla and Opera ensure there's a "default" for search, and it defaults too Google.

When tax exempt income is not tax exempt income

Mozilla also claims tax-exemption for these payments - when it shouldn't, say critics. Taking money for promoting third parties is obviously advertising, and so is considered taxable.

In January, researcher Daniel Brandt finally obtained the Foundation's 990 form that non-profit organizations are obliged to file, and discovered that Mozilla had filed the Google income as "unrelated business income."

"After reading the IRS material," wrote Brandt, "it seems to me that this claim is not only arrogant, but also fraudulent. The IRS instructions make it clear that if a nonprofit newsletter starts carrying ads, for example, then this advertising income is unrelated business income and is taxable. The IRS also makes it clear that just because an unrelated business activity generates income that is then used to further the exempt function or purpose, this does not by itself qualify that activity as exempt from taxation."

In response, the Foundation's public relations company provided this statement to The Register:

The Mozilla Foundation has handled its past income in a manner that we believe is consistent with the relevant IRS and state rules, and has filed tax returns and related forms accordingly. The creation of the Mozilla Corporation made possible an increased focus on building great products like Firefox and Thunderbird, and as a side benefit allowed the Corporation to take over various income-generating activities and simplify tax-related complexities for the tax-exempt Mozilla Foundation going forward.

There's some irony in a corporation that prides itself on not being evil allying with an open source foundation to produce a business agreement so murky and opaque.

Mozilla's best answer to its critics would be to allow some transparency into its operations. ®

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