IFFOR Publishes Two Years Of Tax Returns Showing 85% Of .XXX Domains Don’t Resolve

The International Foundation for Online Responsibility (IFFOR) a not-for-profit organization which was set up as part of ICM application to operate the .XXX registry has now published on its site, its tax returns for 2011 and 2012.

In 2012 IFFOR had income of $267,740.

“This income is derived entirely from the $10 per resolving domain commitment that ICM Registry has made to fund IFFOR.”

“The increase of $58,880 in 2012 is due to an increase in the number of resolving dot-xxx domain names.”

In 2011 IFFOR had an income of $208,860.

“This income is derived entirely from the $10 per resolving domain commitment that ICM Registry has made to fund IFFOR.”

Back in February we posted about IFFOR’s 2011 return and the fact that it only took in some $208,000 all paid by ICM Registry at $10 per domain for  RESOLVING .XXX domain names meaning that .XXX only had some 20,800 resolving domain names which led us to ask  “Are 90% of all .XXX registrations defensive”.

We based our 90% figure on the statement of Stuart Lawley the CEO of ICM Registry made to the effect there were  250,000 .XXX domain names under management at ICM and IFFOR’s payment on their 2011 tax return that represented only 20,800 domains.

At the time we got some push back with some saying our numbers were way off and we couldn’t make the conclusion from one year’s tax return.

But now that we have two tax returns of IFFOR published it becomes pretty clear that somewhere between 20,700 and 26,700 .XXX domain names resolved for IFFOR tax years.

Under the 2012 numbers there are some 26,700 resolving .XXX domain names.

We know that ICM reach a high of about 140,000 registered .XXX domain names in the December 2012 report ICM filed with ICANN.

However that 140,000 figure did not include any of the approximate 80,000 ten year blocks ICM sold to trademark and other rights holders.

So out of the 220,000 domain names registered, including the 10 year blocks only 26,700 or so resolved and were paid by ICM to IFFOR.

We do know by its terms non of the 10 year block domain names do not resolve.

With 190,000 non-resolving domain names, it still seem like an incredibly high percentage of defensive registration and certainly based on the 2012 numbers 85% of all registered .XXX domains Do not Resolve which is a huge percentage as well.

To be clear ICM collects $10 on each .XXX domain name registration for IFFOR. however is responsible to pay IFFOR on the number of resolving domain names.  Thereby ICM collected $10 for each of the 140,000 domain registrations (not on the 10 year blocks) and is only paying IFFOR $10 on each of the 26,700 resolving domains, which all means to say there seems to be over 100,000 domain names ICM is collecting the $10 IFFOR fee for that are staying in ICM coffers adding another $1.oM + to added revenue of ICM.

Here are some other info from IFFOR two years of tax returns.

Salaries

In 2011, IFFOR had salaries of $138,808. including the “salary for IFFOR’s Executive Director (and 8,808 in payroll taxes). An additional $60,833 is listed under Board of Directors stipend.”

In 2012, IFFOR had salaries of $318,712. This covers a full year of salary for IFFOR’s Executive Director Kieren McCarthy at $195,000; its chairman at $70,000; its vice-chair at $35,000; and its secretary (and third member of the Board) at $8,750. The difference of $9,962 is due to payroll taxes.

Other expenses

In 2011 there were additional expenses of $403,985.

The most significant were:

  • $100,725 on Travel. IFFOR representatives attended numerous meetings and conferences over the course of the year, including ICANN meetings and a face-to-face meeting of the Policy Council in Washington DC.
  • $75,586 on Other Fees. These were costs related to the creation of IFFOR as an entity and initial administration costs.
  • $37,500 on stipend to the nine-person IFFOR Policy Council.
  • $37,047 on Legal Fees. These were costs related to the creation of IFFOR as a non-profit organization and review of various contracts.
  • $36,704 on Conferences. IFFOR held a face-to-face meeting of its Policy Council in Washington DC.
  • $20,866 paid to MetaCert for its automated labeling system for content held on dot-xxx websites (an IFFOR policy).
  • $16,489 on insurance, including Directors Insurance and travel insurance.

 

In 2012 There were additional expenses of $309,285. Most significant of these expenses was $100,000 paid to the nine-person Policy Council.

The most significant were:

  • $85,807 on contract labor. This included IFFOR’s Ombudsman, IFFOR’s Manager of Public Participation and the organization that carries out IFFOR’s auditing work.
  • $28,233 on legal services. These were mostly in relation to the establishment of IFFOR as a non-profit organization and the drawing up and review of various contracts.
  • $26,774 paid to MetaCert for its automated labeling system for content held on dot-xxx websites (an IFFOR policy).
  • $19,593 on travel. IFFOR representatives attended numerous conferences over the course of the year, including three ICANN meetings.
  • $14,253 on insurance, including Directors Insurance and travel insurance.
  • $10,000 on IFFOR’s Grant Program, which was split equally between two companies (see here for more details: http://iffor.org/news/grant-recipients)

Breaking: IFFOR’s Tax Return: Only $208K In Revenue From .XXX; Are 90% Of All .XXX Registration Defensive?

The 2011 Tax return for IFFOR has been filed and our friend George Kirikos of Leap.com found it (pdf)

So IFFOR’s tax return is important for two reasons.

First IFFOR return shows us how how much money the non-profit, which is suppose to receive $10 for each .XXX registration, actually received from ICM the operator of the .XXX TLD and how IFFOR spent the money.

Second the return is important to see how the money ICM the registry operator of the .XXX TLD  paid to IFFOR matches up to ICM reported number of .XXX domain name registrations.

The short answer is it doesn’t

So as for IFFOR, tax return for 2011 shows revenue of just $208,000.

It also shows “deferred revenue” of $326,000.

It shows compensation of officers and directors of IFFOR in the amount of  $130,000, or roughly 65% of collected revenue;  another $100,000 in travel which again we would assume is mostly, if not fully for officers and directors or IFFOR,  plus another $37K in conference expenses.

There is also another $60K in a Board of Directors Stipend, and Policy Council Stipend of $37K.

As far as following its mission statement, only $20,000 was spent on “content labeling” which is of course is one of the main missions and purpose of the entire organization.

As far directors go Joan Irvine who was the Director received $130K in compensation, Clyde Beattie received $32K and Sebastien Bachollet received $26K.

It should be noted that Ms. Irvine didn’t even start working for IFFOR until May 2, 2011 so that $130K was only for 8 months of work which is $195,000 annualized and .XXX didn’t even go live until December 2011.

In all IFFOR the organization had a loss in 2011 of $333,000.

However, and quite important IFFOR is reporting their taxes on an accrual basis not a cash basis.

What that means is that they should be reporting the income they earned it in 2011 in 2011 even if they didn’t receive the cash, and the same for expenses.

So IFFOR should have reported and therefore we can only assume they did in fact report, all of the revenue they earned and expected to receive in 2011 on their  2011 return, even if they money wasn’t going to be paid until 2012.

So we have to disregard this “deferred income” entry and just call it like the returns says, that IFFOR only got $208,000 from 106,000+ registrations of .XXX domain names.

Now as for the for what the these numbers mean as far as the .XXX registry is concerned?

My understanding is that of the $62 wholesale cost for each .XXX domain registration, ICM gets $50, IFFOR gets $10 and ICANN gets $2.

According to the report ICM filed with ICANN, as of December 2011, there were 106,549 .XXX domain name registered, not including the 80,000 10 year blocks sold to trademark holders.

That should have generated some $1,006,000 for IFFOR.

However IFFOR says the only got $208,000.

It is showing on its return deferred income of $328,000 as a liability not an asset but we think this is unimportant as IFFOR elected to pay on the accrual rather than cash basis, but more on that later.

Of the $1,006,000 that ICM collected ($10 per registration not including blocks, ICM only paid the non-profit IFFOR, $208,000 or 20% of what it collected in the name of IFFOR

Even if it owes IFFOR another $326K (“deferred income”)  then they ICM paid IFFOR just over 50% of the money they collected for IFFOR.

What happened to the rest of the money?

The question is why IFFOR hasn’t said a peep (publicly)  about being underpaid $800K from ICM nor have they filed a lawsuit for the underpayment.

There is a thought out there that the $10 per .XXX registration ONLY gets paid to IFFOR for those domains which the registrant has elected to be a member of adult community.

Obviously those who registered a defensive .XXX registration are not electing to become a member of the adult community.

However that’s not the way ICM application to ICANN reads nor how the .XXX extension has been marketed.

If community use is how ICM based their payment to IFFOR, then it would mean that only 20,800 of the 106,000 initial .XXX registrations  are owned by members of the adult community, which are domainers and adult website owners).

Stuart Lawley CEO of ICM, the company that operates the .XXX registry has said that there are some 250,000 .XXX registrations, which include those 80,000 ten year blocks sold to trademark holders.

However if only 20,000 of those domains are actually in use by members of the adult community that would mean less than 10% of all .XXX domain names are owned by the members of the community, meaning that more than 90% of all .XXX registrations are defensive or owned not by members of the adult community.

If the $326,00 showing from IFFOR as being “deferred income” is for $10 fees paid to ICM but not yet paid in 2011 to IFFOR that would still mean that 50% of all active registration are not members of the adult community or defensive or taking into account the 10 year blocks then 50,000 out of 250,000 registrations are registered by members of the adult community and 200,000 are registered defensively but then wouldn’t follow accounting principal for accrual based taxpayers

Either way IFFOR tax return raises a LOT of questions.

Remember .XXX is not a new gTLD or a TLD but a sTLD, approved by ICANN to represent the adult community.

Under ICM proposal to operate the .XXX registry IFFOR was always suppose to get $10 of each registration.

When and how did that change?

Why didn’t IFFOR sue for the money it was owed and not paid?

Considering IFFOR was part of ICM application to ICANN to operate the .XXX registry what will ICANN say about this discrepancy in payment vs. funding?

With the funding of ICM to IFFOR based on IFFOR tax return is ICM in compliance with its contract with ICANN?

Where does it say that ICM only has to pay IFFOR $10 a registration for those registered by members of the adult community?

Most importantly as far as .XXX TLD is concerned are 90% of the 250K registration cited by Lawley or 75%  (difference based on deferred income amount showing on IFFOR’s return) .XXX registrations made by members not in the adult community and therefore defensive registration?

and if so, how can .XXX be said to represent the adult community

 

After Collecting At Least $1.4 Million, IFFOR Funded By .XXX Finally Gives 2 Grants Of $5K Each

According to xBiz.com, IFFOR the non-profit which receives $1o from each registered .XXX domain name, has issued its first two grants, in the amount of  $5,000 each.

IFFOR stands for International Foundation for Online Responsibility and as I said is funded by .XXX domain name registrations and renewals.

Each time a .XXX domain is registered or renewed IFFOR gets $10 of the registration or renewal fee paid to the registrar.

According to the last monthly report ICM,  the operator of the .XXX registry filed with ICANN (September 2012) there just under 141,000 .XXX domain names registered (not counting the 10 year blocks) which would have generated over $1.4 million in fees for IFFOR for 2012.

Of course .XXX first renewals have now kicked in and although I haven’t seen any renewal stats we would expect that IFFOR would have now received in excess of $2.5 million in funding from .XXX registration and renewals.

Today IFFOR announced “”the first recipients of grants”” which were for “Two studies into online age verification and the abuse of newsgroups by those seeking child abuse images.

“Innovate Identity and the Internet Watch Foundation (IWF) will both receive $5,000 to fund research that will look into key aspects of online responsibility and provide reports in the second quarter of this year that IFFOR expects will further policy discussions in these areas”.

“Innovate Identity is an independent consultancy that will use IFFOR’s grant to create a white paper on best practices used in the digital economy for assuring the age of individual Internet users”.

“Increasingly, there are both business advantages and legislative requirements around identifying the age of users, but doing so presents a complex policy issue where technical requirements need to be balanced with ease-of-use and privacy”.

“The Internet Watch Foundation (IWF) will use its grant from IFFOR to complete its research into how online newsgroups are used by those seeking child abuse images”.

“Both these grants will enable cutting-edge research into issues of online responsibility,” IFFOR chairman Clyde Beattie said. “These two were chosen by the grant committee of the policy council from a group of six applications. They represent an opportunity to provide real value to policy decisions, the Internet, and gTLDs in the future.”

I have not heard of any other grants being issued by IFFOR since its inception.

Worldwide Media, Inc, owned by the author of TheDomains.com, registered over 200 .XXX domain names in 2011 meaning that we “contributed over $2,000 to IFFOR.

TheDomains.com reached out to IFFOR chairman Mr. Beattie a few months ago and requested a detailed accounting of the funds it received.

Mr. Beattie declined to furnish TheDomains.com any financial information on its income or expenses for 2012.

Mr. Beattie further told TheDomains.com that IFFOR  “has no plans to release financial information accept as may be required by law”.

However here is what Mr. Beattie described to us as “some of the activities initiated and carried on by IFFOR in the past year”:

“”* Represented IFFOR at global conferences and briefings: Washington, London and Brussels as well as FOSI, INHOPE, Aspen Forum, ICANN, XBIZ EU, Webmaster Access
* Retained Metacert for labeling of all dot-xxx sites
* Engaged Ombudsman Services to engage with stakeholder communities as well as conduct audits of ICM’s compliance reporting system
* Staffed – Executive Director and Manager of Public Participation
* Established policy council – held an in-person, two-day meeting for all nine members; plus three online meetings
* Established two Policy Council working groups (Piracy & Censorship) who have participated in global initiatives
* Developed a grants program which is currently accepting applications.
* Engaged in a variety of operational matters including:
- Legal establishment of IFFOR as a 501(c)(4) non-profit
- Established and continue to develop the IFFOR website
- Held seven Board meetings to discuss various policy, compliance and other organizational matters
- Engaged Washington government relations firm
- Developed and submitted ICANN-required reports
- Produced marketing materials plus briefing guides on IFFOR and its work””