‘Nonprofit’ label shields firms’ profits

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When someone mentions “nonprofits” at this time of year we get warm feelings of the selfless charities that care for the less fortunate. Or maybe we think about schools or churches or hospitals.

There is a contentment in knowing they put all their money into efforts to help people rather than meeting a tax obligation.

But if Congress wants to give Americans a Christmas present it should invest some time in a re-examination of how easy it is to get nonprofit status. Bloomberg News recently reported on how organizations such as the American Bureau of Shipping and the U.S. Polo Association are able to steer clear of taxes even though they rake in billions in revenue in what are essentially large-scale, profit-making commercial enterprises.

ABS, which inspects independently owned ships, employs 3,028 people in 70 countries. It generated $3.17 billion in revenue — just less than $600 million in profit — from 2004 to 2010 while lavishing its chief executive officer with $21.7 million. Its officers, directors and top-paid employees have received such perks as first-class or charter air service, travel for companions, health and social club dues and personal services such as chauffeurs, chefs and maids, Bloomberg reported.

The U.S. Polo Association reports $1 billion in annual retail sales of merchandise, placing it in the top 50 of all licensed brands.

Yet neither of these organizations pays a dime in taxes.

“Taxpayers are subsidizing them. It’s wild,” said Dean Zerbe, senior counsel and tax counsel for the Senate Finance Committee until 2010, of this category of nonprofits.

The problem rests in the ease in which nonprofit status is granted. According to Bloomberg, anyone can start a nonprofit by incorporating and filling out an IRS application.

“It’s a complete rubber-stamping,” said Ken Berger of Charity Navigator, a watchdog group based in New Jersey. “The IRS and the states are tremendously understaffed.”

The IRS told Bloomberg that some groups — including ABS and the Polo Association — can self-declare their tax-exempt status and not even go through the application process.

Federal law on tax-exempt companies is so lax and vague that organizations can legally skip taxes on hundreds of millions of dollars of profit, Zerbe told Bloomberg.

This is absurd. It is a wonder that every person and business hasn’t glommed on to this, labeled themselves “nonprofit” and eliminated taxes all together.

Taxes may be unpleasant, but they are necessary. All we can ask is that the playing field be as level as possible so the burden is equitably shared. Allowing commercial enterprises to shield their profits by a simple declaration of being “nonprofit” is detrimental to businesses they compete with that do pay taxes. And it is a slap in the face of true nonprofits, whose aspirations are to help others — not enrich themselves.

This is one tax loophole that Congress should resoundingly slam shut — and soon.

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