My read of this is that they applied as a charity, but the IRS's definition of a charity requires that you be serving a distinct, disadvantaged group of people. A quick look at the software that Yorba produces (http://yorba.org), does not lead me to believe that their software would particularly benefit any specific disadvantaged groups more than other people.
So by the rules that the IRS is working on, it does appear that they do not qualify as a charity. And to be honest, this is a correct definition, they are not running a charity. Now there is a valid question about whether there should be a method for them to run a non-profit without being taxes, but they are not a charity.