IRS Struggles to Know if Big Nonprofits Pay the Taxes They Owe
Four years after the Internal Revenue Service started requiring nonprofits to submit more information about their charitable and commercial activities, the agency still struggles to determine which income earned by colleges, hospitals, and other big institutions is taxable, an IRS official said today.
Steven T. Miller, deputy IRS commissioner, made the comment at a Congressional hearing devoted to an issue that has vexed lawmakers and regulators—how to ensure that charities pay taxes on income they generate through businesslike activities such as magazine publishing and retail sales.
Figuring out if an organization’s business income is “substantially related” to its charitable mission, and therefore tax-exempt, “is a remarkably difficult and soft sort of issue to deal with,” Mr. Miller told the oversight subcommittee of the House Ways and Means Committee. For example, the agency has to determine questions like whether to tax money a nonprofit museum earns from post cards sold in its gift shop, he said.
The rules governing unrelated business income taxes are an “ongoing source of confusion,” said Rep. Charles W. Boustany Jr., a Louisiana Republican who chairs the subcommittee, which oversees the IRS.
A 2008 Chronicle investigation found that more than half of 91 large charities with unrelated business activities reported overall losses or no taxable income. Many were taking advantage of vague language or exemptions built into the law to avoid paying taxes, it found.