Do You Want Innovation and Jobs? Repeal § 511

Abstract

Since 1950, Congress has limited the scope of the activities in which a nonprofit entity could participate, in part due to a controversy over a pasta company donated to the NYU School of Law by a couple of wealthy alumni. The pasta profits helped the school refurbish and expand, but competing noodle manufacturers complained that the law school was not paying taxes on what was a commercial venture. Today, as we face high unemployment and a struggling economy, innovation and job creation are matters of national and international concern. Our universities harbor large untapped reserves of intellectual capital - commercial projects that, in large measure, have been relatively ignored because of the controversy that arose in the 1950s. Is it time to repeal or grant a holiday from the tax laws that restrict nonprofits from entering the marketplace?

Keywords: Intellectual Property, Unrelated Business Income Tax, Exempt Organizations, Nonprofits, Innovation, Universities, Income Tax

JEL Classification: K19, H2, H20, H25, H21, H71, K34, O34, D23, K11