Taxable Income Management by Nonprofit Organizations

Abstract:     
We develop an analytical model of nonprofit tax reporting behavior and then examine the organization-specific characteristics that are associated with two measures of aggressive tax reporting. Our first measure is based on a distributional analysis which finds that an abnormally large number of nonprofit organizations manage their taxable income to near zero. Our second measure uses expense allocations from prior research. We find that aggressive tax reporting behavior is increasing in CPA prepared tax returns and tax rates and deceasing in IRS audit risk and accumulated net operating losses. The study represents the first analysis of the characteristics associated with taxable income management in the nonprofit setting.

Number of Pages in PDF File: 43

Keywords: Tax compliance; Nonprofit organizations

JEL Classification: M41, M48, H24

working papers series