I (like many) have had a nightmarish experience trying to get 501(c)(3) status for the open-source NGO I've started, a process that has taken over 2 years now. I could probably write a book about the experience. The IRS tax-exemption process is out-of-touch and ineffective at best, and political and corrupt at worst. There are many anecdotes I could share, but here are a couple:
We met with Lois Lerner and members of her team about our tax-exempt status, and the whole meeting was about the dysfunctional relationship between the IRS and another USG department, not a word about the merits of the case.
At one point in a recent meeting with the IRS, they said my anti-censorship software could be used to spread child porn. I asked, well, what if 20 years ago the Web itself was being created by an NGO seeking tax-exempt status? Would the IRS block it because the Web could be used to spread child porn? The IRS lawyers indicated a probable yes.
It looks like the recent IRS "scandal" has been a political fabrication (cherry-picked transcripts, false insinuations against Obama), but I hope it leads to a complete overhaul of the tax-exemption process. My experience makes me wonder how many great projects have died on the vine waiting for their tax-exempt status from the IRS.
FYI, for 501(c)(3) status, there is a list of "exempt purposes" that qualify, as interpreted by IRS lawyers with a mountain of very opaque precedent. Two of the exempt purposes that open-source software *should* qualify under are "scientific" (computer science) and "educational" (open-source software teaches programming). But to the out-of-touch IRS, open-source is a "new" concept, and so they are overly cautious.