Form 1023 (Appendix 4)

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Response to Part II, Question I

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") address space;

(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 California.

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 of Commerce.(8)

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) Status:

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).

1. 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).

2. Appendix 8. A Proposal to Improve Technical Management of Internet Names and Addresses, 63 Fed. Reg. 8826 (February 20, 1998).

3. Appendix 9. Management of Internet Names and Addresses, 63 Fed. Reg. 31,741-01 (June 10, 1998).

4. 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).

5. Appendix 12. Special Award Conditions, NCR-9218742, Amendment No. 11 (Effective Date: October 7, 1998 / Expiration Date: September 30, 2000).

6. 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.

7. 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 30, 2000).

8. Appendix 12. (second to last paragraph within "Special Award Conditions").

9. 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).

10. Rev. Rul. 85-2, 1985-1 CB 178.

11. Id.

12. 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."