Form 1023 (Appendix 4)
Response to Part II, Question
Description of ICANN's Activities:
ICANN's sole activity, to which it devotes
100% of its time and resources, is the administration and management
of various technical and policy functions necessary to ensure
the continued stability, interoperability and effective performance
of the domain name system of the Internet, through the development
of consensus concerning those issues. Because the domain name
system is the collection of names and addresses that enables
the Internet to properly route information, the purpose of this
activity is to maintain and enhance the performance and availability
of the Internet for the general public. The performance of these
technical and policy functions furthers ICANN's tax-exempt purpose
of lessening the burdens of government because, if it were not
for ICANN's willingness to assume responsibility, the U.S. government
would be obligated to continue to perform these functions so
that the Internet would continue to be a viable and useful resource
for individual and business users around the world. The performance
of this activity will be conducted in accordance with the Memorandum
of Understanding currently in place between the U.S. Department
of Commerce and ICANN, which is reproduced at Appendix 14. The
activity will be conducted by ICANN, by employees of ICANN, and
by independent contractors hired by ICANN.
The tasks necessary for the performance
of ICANN's sole activity include:
(i) coordinating the assignment of Internet
technical parameters as needed to maintain universal connectivity
on the Internet;
(ii) performing and overseeing functions
related to the coordination of the Internet Protocol ("IP")
(iii) performing and overseeing functions
related to the coordination of the Internet domain name system
("DNS"), including the development of policies for
determining the circumstances under which new top-level domains
are added to the DNS root system;
(iv) overseeing operation of the authoritative
Internet DNS root server system; and
(v) other tasks as necessary to carry out
the above functions.
Each of the above tasks has been previously
conducted by various U.S. government or U.S. government-contracted
entities. The formation of ICANN with the intention to take over
these tasks began in July 1997 when President Clinton directed
the Secretary of Commerce to privatize the domain name system
("DNS") in a manner that increases competition and
facilitates international participation in its management.(1)
The coordination and assignment of Internet
technical parameters and the coordination of IP address space
was previously conducted by the Internet Assigned Numbers Authority
("IANA") under contract with the Defense Advanced Research
Projects Agency.(2) IANA was a part of the
Information Sciences Institute at the University of Southern
The coordination of the DNS was previously
conducted by a variety of entities.(3) As
the Internet grew, the need for more coordination grew. In response
to this need, the National Science Foundation awarded a contract
to Network Solutions, Inc. in January, 1993 to provide non-military
Internet registration services.(4) On October
7, 1998, the contract was extended to September 30, 2000 with
the understanding that the United States Government was in the
process of transferring all of its DNS-related responsibilities
to ICANN (referred to in the contract as NewCo) and that ICANN
would assume the U.S. Department of Commerce's responsibilities
under the contract.(5)
The root server system, a set of thirteen
file servers disbursed throughout the world, has been and is
currently operated under the authority of the U.S. government
by the USG and a small number of private organizations.(6)
In the Memorandum of Understanding Between the U.S. Department
of Commerce and ICANN dated November 25, 1998 ("Memorandum
of Understanding"),(7) the U.S. government
agreed to transfer oversight responsibilities to ICANN after
jointly developing a system that would facilitate a smooth transfer.
Currently, day-to-day maintenance of the root server system is
performed by Network Solutions under contract with the U.S. Department
On September 28, 1999, the United States
Department of Commerce announced that a series of agreements
had been reached between it, ICANN and Network Solutions that
represented a significant step toward the completion of the privatization
process represented by ICANN. These agreements included proposed
amendments to the MOU and to the contract with Network Solutions,
attached at Appendix 5. The agreements have been posted for public
comment on ICANN's website (http://www.icann.org) and following
the 30-day public comment period will be acted on by ICANN at
its Annual Meeting on November 2-4, 1999. Attached at Appendix
6 are news articles from the Washington Post, the Los Angeles
Times, and the Wall Street Journal which describe recent activities
which relate to ICANN.
Legal Support for I.R.C. § 501(c)(3)
Under I.R.C. § 501(c)(3), corporations
organized and operated exclusively for charitable purposes are
exempt from taxation. Treas. Reg. § 1.501(c)(3)-1(d)(2)
states that activities aimed at lessening the burdens of government
are charitable activities.
Rev. Rul. 85-2,(9)
provides the most authoritative guidance as to what will qualify
as "lessening the burdens of government." In it, the
IRS established a two-part test: 1) whether an organization's
activities are activities that a governmental unit considers
to be its burdens, and 2) whether such activities actually "lessen"
such governmental burden. It then states that:
To determine whether an activity is a burden
of government, the question to be answered is whether there is
an objective manifestation by the government that it considers
such activity to be part of its burden. . . . The interrelationship
between the organization and the government may provide evidence
that the government considers the organization's activities to
be its burden. To determine whether the organization is actually
lessening the burdens of government, all of the relevant facts
and circumstances must be considered. A favorable working relationship
between the government and the organization is strong evidence
that the organization is actually "lessening" the burdens
of the government.(10)
The application of this two-part test to
ICANN reveals that ICANN qualifies as an organization organized
and operated solely for the charitable purpose of lessening the
burdens of government.
To answer the first question--whether the
organization's activities are activities that a governmental
unit considers to be its burdens--it must be determined "whether
there is an objective manifestation by the government [such as
an "interrelationship between the organization and the government"]
that it considers such activity to be part of its burden."(11)
The contract with Network Solutions and
the Memorandum of Understanding both evidence the United States
Government's understanding that the functions intended to be
carried out by ICANN would otherwise be--and until the completion
of the transition to ICANN are--the responsibility and burden
of the United States Government. Indeed, the history of the Internet
in general and the domain name system in particular clearly establish
that it was United States Government funding that supported the
research and implementation that created the Internet, and that
supported the creation and management of the domain name system
to this date. While there are numerous manifestations of this
fact, one clear illustration is the interrelationship between
the DOC and ICANN, which demonstrates that the DOC considers
the technical management of the DNS as a governmental burden.(12) In the Memorandum of Understanding, the
DOC stated that it "requires assurances that the private
sector has the capability and resources to assume the important
responsibilities related to the technical management of the DNS."
It also stated that the "[a]greement is essential to ensure
continuity and stability in the performance of technical management
of the DNS now performed by, or on behalf of, the U.S. Government."
The implication of these statements is
that the management of the DNS will revert back to the federal
government if ICANN is unable to "assure" the DOC of
ICANN's ability to manage the DNS. In fact, the agreements noted
above recently entered into by the Department of Commerce, ICANN
and NSI make this point explicitly: Amendment 1 to the MOU states,
in paragraph 5, that all contractual authority that ICANN obtains
will revert to the United States Government if the USG withdraws
its recognition of ICANN by terminating the MOU.
Moreover, in GCM 39682,(13)
the IRS stated that "[w]hen a particular activity has been
engaged in by a governmental unit on a regular basis for a significant
length of time before it is taken over by an organization, it
may be apparent that the activity is a burden of government."
Because 1) DNS management has always been undertaken by, or on
behalf of, the federal government, 2) the DOC and ICANN have
an established interrelationship with regard to DNS management,
3) the DOC has made statements indicating that it considers DNS
management to be a governmental burden, and 4) ICANN's contractual
powers will revert back to the DOC if it terminates the MOU with
ICANN, it is clear that ICANN will be performing duties that
will otherwise be governmental burdens.
The second question--whether the organization
is actually lessening the burdens of government--is a facts and
circumstances determination. Rev. Rul. 85-2 states that "a
favorable working relationship between the government and the
organization is strong evidence that the organization
is actually 'lessening' the burdens of the government" (emphasis
added). This favorable working relationship is evidenced by the
Memorandum of Understanding which states that the DOC and ICANN
will "jointly design, develop, and test the mechanisms,
methods, and procedures that should be in place and the steps
necessary to transition management responsibility for DNS functions
now performed by, or on behalf of, the U.S. Government to a private-sector
not-for-profit entity." If ICANN is fulfilling the terms
set forth in the Memorandum of Understanding and if it eventually
becomes solely responsible for DNS management activities, then
it will lessen the burdens of government. That is, it will perform
DNS management activities that the DOC would otherwise have the
burden of performing.
In summary , because ICANN is performing
activities that the DOC considers to be burdens of the federal
government, and because ICANN's activities actually lessen the
governmental burden of DNS management, ICANN is organized and
operated exclusively for the charitable purpose of lessening
the governmental burden of providing DNS management. As a result,
ICANN qualifies for tax-exempt treatment under § 501(c)(3).
Appendix 7. The White House, A Framework for Electronic Commerce
(July 1, 1997). See also, President on Framework
for Global Electronic Commerce, 1997 WL 362673 (press release
issued by The White House Office of Communications).
Appendix 8. A Proposal to Improve Technical Management of Internet
Names and Addresses, 63 Fed. Reg. 8826 (February 20, 1998).
Appendix 9. Management of Internet Names and Addresses, 63 Fed.
Reg. 31,741-01 (June 10, 1998).
Appendices 10 and 11. NSF Solicitation for Network Information
Services Manager for NSFNET and the NREN (March 19, 1992); NSF
Cooperative Agreement No. NCR-9218742 (Effective Date: January
1, 1993 / Expiration Date: September 30, 1998).
Appendix 12. Special Award Conditions, NCR-9218742, Amendment
No. 11 (Effective Date: October 7, 1998 / Expiration Date: September
Appendix 13. The U.S. Department of Commerce June 10, 1998 statement
refers readers to http://www.wia.org/pub/rootserv.html for "an
unofficial diagram of the general geographic location and institutional
affiliations of the 13 Internet root servers. Appendix 13 reflects
the contents of this site as of September 29, 1999.
Appendix 14. Memorandum of Understanding Between the U.S. Department
of Commerce and Internet Corporation for Assigned Names and Numbers
(Effective date: November 25, 1998 / Expiration Date: September
Appendix 12. (second to last paragraph within "Special Award
Rev. Rul. 85-2, 1985-1 CB 178. See also, Rev. Rul.
85-1, 1985-1 CB 177 (companion ruling providing the first interpretation
of the two-part test established in Rev. Rul. 85-2).
Rev. Rul. 85-2, 1985-1 CB 178.
See also, GCM 39347 (March 15, 1985) which states
that "the 'attitude' of the appropriate government [unit]"
is relevant to this test and that "evidence of a favorable
atmosphere of cooperation between the organization and the government
is an important factor."
13. GCM 39682 (Sept. 14, 1987). See also,
GCM 39733 (Feb. 4, 1988) (finding an objective manifestation
that a government unit considered the activities of a non-profit
organization to be a governmental burden).
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