NCPA - National Center for Policy Analysis

Nonprofit's Taxation Is under Review

November 27, 2013

Congress is seriously considering changes to the complicated rules that govern the way nonprofits may operate income-generating businesses. While reform won't be simple, this is an area that cries out for greater fairness in the way nonprofits and for-profits are treated under our tax laws, says Neil Maghami of the Capital Research Center.

Probably the most egregious and most powerful serial abuser of the non-profit tax exemption is the crony-capitalist, big government lobby AARP. Formerly known as the American Association of Retired Persons, the politically formidable AARP describes itself as a "nonprofit, nonpartisan organization with a membership that helps people 50-plus have independence, choice and control in ways that are beneficial and affordable to them and society as a whole."

  • What the AARP never admits in public is that it's a mammoth money-making enterprise, with $1.57 billion in assets and revenue of $1.18 billion in 2010, according to its tax returns.
  • The billions of dollars generated by AARP's money-making operations, as well as the extravagant salaries that it pays its executives, are so noteworthy that members of Congress have asked the IRS to review AARP's tax-exempt status.

In a 1999 article for the Capital Research Center, Patrick Reilly welcomed the idea that nonprofit leaders might embrace for-profit activities, "as long as a nonprofit's primary private activity continues to warrant tax-exemption." Reilly also warned against the heavy hand of "intrusive government regulations" as a solution to the problem. And in that admonition, Reilly made a point Congress should keep in mind in its current deliberations.

It would benefit neither the nonprofit sector, nor the for-profit sector, if the lines between the two became practically invisible by wanton non-enforcement of the relevant tax rules.

At the same time, drawing an unduly rigid line between the two through regulation would risk inviting an unwelcome level of government intrusion into and surveillance of nonprofit groups' activities.

Source: Neil Maghami, "When Nonprofits Compete with Businesses," Capital Research Center, November 2013.


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