[EL] big IRS story - a note on taxes

[Ellen Aprill]

I am still at the ABA Tax Section meetings and writing this on my phone so
please excuse typos.

Sean's position that nonprofits have no profits to tax has a distinguished
pedigree. It is the position Boris Bittker took in a famous article at 85
Yale LJ 299 (1976). Many still take this position.

I think, however, more in the exempt org world have been persuaded by Henry
Hansmann's article at 91 Yale LJ 54 (1981) disputing Bittker's contention
that we could not define taxable income for nonprofits. Hansmann coined the
phrase "nondistribution constraint," which captures the notion that
nonprofits can (and often do) make what we would call profits but that they
cannot distribute those profits to owners. Han
On May 11, 2013 11:00 AM, "Sean Parnell" <sean at impactpolicymanagement.com>
wrote:

> I’ve seen a few references here and elsewhere to c4 groups being
> subsidized by taxpayers or having some sort of privileged tax status, so I
> thought it might be worth clearing up a point about U.S. tax code.
> Corporate taxes are based on one fundamental premise – taxes are levied on
> profits earned by the corporation. Because c4 groups are *intentionally
> nonprofit* corporations, and thus have no profits on which taxes might be
> levied, it’s not really accurate to somehow suggest they are ducking taxes
> or receive some sort of special tax exemption. You could, tomorrow, pass a
> law that says c4 groups are subject to corporate income taxes in exactly
> the same way a for-profit corporation is, and it would be meaningless – no
> profits = no tax liability.****
>
> ** **
>
> There may be others, but to my knowledge there is only one industry in
> which firms (incorporated or otherwise) are subject to a federal ‘gross
> receipts tax’ wherein a percentage is levied against all revenues
> regardless of profitability, and that is the medical device industry which
> (warning – editorial content ahead) failed to ‘volunteer’ to ‘contribute’
> to the Affordable Care Act by cutting a deal with the Obama administration.
> ****
>
> ** **
>
> So, the ‘privileged’ tax status of c4 groups (all nonprofits, for that
> matter) really isn’t all that privileged, other than c3 groups whose donors
> can subtract donations from their own taxes. Setting aside all the tax
> loopholes and preferences that Congress has carved out over the years, the
> reason most corporations (for-profit and non-profit alike) don’t pay
> corporate income taxes is that they don’t have profits available to be
> taxed (there is something called unrelated business income for nonprofits
> that is taxed, but that’s a separate matter). ****
>
> ** **
>
> Best,****
>
> ** **
>
> ** **
>
> Sean Parnell****
>
> President****
>
> Impact Policy Management, LLC****
>
> 6411 Caleb Court****
>
> Alexandria, VA  22315****
>
> 571-289-1374 (c)****
>
> sean at impactpolicymanagement.com****
>
> ** **
>
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