TY  - JOUR
AU  - Hines, James R, Jr.
TI  - Nonprofit Business Activity and the Unrelated Business Income Tax
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6820
PY  - 2000
Y2  - November 2000
DO  - 10.3386/w6820
UR  - http://www.nber.org/papers/w6820
L1  - http://www.nber.org/papers/w6820.pdf
N1  - Author contact info:
James R. Hines
Department of Economics
University of Michigan
343 Lorch Hall
611 Tappan Street
Ann Arbor, MI  48109-1220
Tel: 734/764-2320
Fax: 734/764-2769
E-Mail: jrhines@umich.edu
M1  - published as James R. Hines Jr.. "Non-Profit Business Activity and the Unrelated Business Income Tax," in James Poterba, editor, "Tax Policy and the Economy, Volume 13" MIT Press (1999)

AB  - American nonprofit organizations are generally exempt from federal income tax, with the exception that profits earned from activities that are subject to the Unrelated Business Income Tax (UBIT).  The UBIT is intended to prevent nonprofits and taxable for-profit firms, and also to prevent erosion of the federal tax base through tax-motivated transactions between taxable and tax-exempt entities.  The evidence indicates that American nonprofit organizations engage in very little unrelated business activity, paying aggregate UBIT of less than $200 million annually. Large nonprofit organizations, and those with pressing financial needs due to high program-related expenses and low receipts of contributions and government grants, are the most likely to have unrelated business income.  The same organizational characteristics are not associated with earning income from inventory sales that are nonprofits incur important organizational costs in undertaking unrelated business activity, since unrelated business income is concentrated among organizations facing the strongest financial pressures.  This, in turn, carries implications for the efficiency of the UBIT as a source of tax revenue and for the need to tax the business income of nonprofit organizations in order to prevent
ER  -