DISCUSSION OF Tax Misreporting and Avoidance by Nonprofit Organizations

Abstract

INTRODUCTION Omer and Yetman (2006) examine tax evasion and tax avoidance by nonprofit organizations as well as the determinants of evasion and avoidance. They measure tax evasion as the amount of excess taxable expenses arising from improperly applying mechanical expense limitations associated with certain unrelated business activities. They measure tax avoidance as tax-motivated expense allocations estimated using the methodology developed in Yetman (2001). The results suggest that 19 percent of the sample nonprofits evade the Unrelated Business Income Tax (UBIT) by overstating taxable expenses by 30 percent. Further, UBIT evasion/avoidance is decreasing in detection risk and increasing in tax rates, tax return complexity, and accounting system flexibility. Given the ongoing, spirited debate surrounding various issues connected with organizational financial reporting, I think Omer and Yetman (2006) address timely research questions that have a broad appeal to policymakers, academics, and practitioners.