Tax Exempt Organizations: Activities and IRS Oversight

GAO discussed the taxable and nontaxable revenues of tax-exempt organizations. GAO noted that: (1) financial resources are concentrated among a small number of tax-exempt organizations; (2) competition between taxable businesses and tax-exempt organizations led to the enactment of the unrelated business income tax (UBIT) in 1950, but tax-exempt organizations have reported most of their income as coming from exempt activities; (3) in 1993, about 3 percent of all tax-exempt organizations paid almost $174 million in UBIT; (4) tax-exempt organizations have derived increasingly smaller revenue shares from contributions and dues; (5) in 1991, about 96 percent of charitable and educational organizations' and 75 percent of social welfare organizations' income from unrelated activity was excluded from UBIT because it fell under at least 1 of 40 exclusions; and (6) the taxable status of tax-exempt organizations' business income has been difficult for the Internal Revenue Service (IRS) and taxpayers to determine, and IRS has undertaken initiatives to improve UBIT compliance.