Behavior of Nonprofit Organizations in For-Profit Markets: The Curious Case of Unprofitable Revenue-Raising Activities
When nonprofit organizations in the U.S. engage in activities that are "substantially related" to their legal mission they pay no profits taxation, but profit from "unrelated business" (UB) activities is taxed. Since UB activity has no apparent justification other than to generate revenue, we attempt to explain why no profit is so frequently reported. We examine the accounting allocation of joint costs, such as depreciation, between the taxed and untaxed activities in six industries - including health, education, and the arts - and also the specific kinds of UB activities undertaken. We find evidence that the reported unprofitability of UB activity masks true profitability.
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Volume (Year): 164 (2008)
Issue (Month): 4 (December)
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- James R. Hines, Jr., 2000.
"Nonprofit Business Activity and the Unrelated Business Income Tax,"
NBER Working Papers
6820, National Bureau of Economic Research, Inc.
- James R. Hines Jr., 1999. "Non-Profit Business Activity and the Unrelated Business Income Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 13, pages 57-84 National Bureau of Economic Research, Inc.
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- Khanna, Jyoti & Sandler, Todd, 2000. "Partners in giving:: The crowding-in effects of UK government grants," European Economic Review, Elsevier, vol. 44(8), pages 1543-1556, August.
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