The Yorba Foundation, a non-profit group that produces open source Linux desktop software, reported last week that it was denied tax-exempt 501(c)(3) status by the IRS. The group had waited nearly five years for a decision. The IRS stated that, because the software Yorba develops can be used commercially, the organization has a substantial non-exempt purpose and is disqualified from tax-exempt status. We think the IRS’ decision rests on a fundamental misunderstanding of open source software.