Mozilla has IRS breathing down its Google branded neck

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 organisation behind the massively popular Firefox browser.

Last year the Foundation received $66 million of its total $75 million revenue (88 percent) from search engine maestro’s Google, so the IRS are looking for blood over the organisations tax exempt status. Back in 2006, Mozilla got $59.5 million from Google – around 85 percent of the organisations 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 a further three years. That deal will expire in November 2011.

In 2003, Mozilla received tax exempt status, which meant it didn’t pay any taxes in 2004’s revenue of $4,422,674. The organisation said the agreement with ‘a search provider’, “facilitates the dissemination of the Foundation’s browser, thereby increasing the accessibility of the internet.” Do I know exactly what they mean by that? Well not really if you must know.

In 2005, Mozilla created a for-profit operation, whereby multiple search engine contracts were transferred to the new Mozilla Corporation. When they made the change, Mozilla say they have a “tax reserve fund” set aside in-case the IRS come looking for the tax from 2004/05 – which they are.

The IRS has stated that they are launching a review: “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.”

In the finance report, Mozilla claim that its search revenues should be classed as royalties, and therefore not be taxed, however, they are well aware that the IRS could see things differently. Mozilla has a bit of spare cash in its tax reserve - $14,832,000 at the end of 2007.

The report also says that an inquiry into the organisations tax exemption has begun due to Google supplying a large chunk of the Foundation’s revenue.

“While the Foundation did not automatically qualify as a public charity with public support at 33 per cent of total support, it believes that it qualifies as a public charity under the facts and circumstances test with public support over 10 per cent,” said the report

If the IRS finds Mozilla hs not been taxed correctly, the organisation says it will become a private charity, and release around 100,000 in taxes.

Resource - Linux Solutions