March 2, 2010 | Read Time: 1 minute
Only about 40 percent of the nearly 14,200 charities that reported receiving business income not related to their missions for the 2006 tax year wound up paying tax on those earnings, according to new statistics released by the Internal Revenue Service.
Charities reported a collective gross income from business activities of more than $6.45-billion, yet paid just $280-million in tax.
Under federal law, nonprofit groups must pay tax on income generated from business activities that are not “substantially related” to their charitable mission.
A 2008 Chronicle study of the business practices of 91 of the nation’s largest charities found that many organizations take advantage of vague rules and specific exemptions built into statutes to legally avoid paying taxes. Fifty-one percent of the charities in the study listed zero taxable income or a loss for activities after they took deductions and made other calculations.
The latest IRS figures show that nearly 60 percent of charities that reported unrelated-business income in 2006 listed zero or negative taxable income. The statistics were similar in 2005.
