Some Nonprofits Look Suspiciously Like For-Profits

Steve Inskeep talks to David Evans, of Bloomberg Markets magazine, about his article in the current issue, which focuses on the plethora of nonprofits — not charities, hospitals, or religious groups — that claim tax-exempt status even though they make millions in profits.

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STEVE INSKEEP, HOST:

The word nonprofit evokes the image of a charity or a church, an educational institution, public radio station. But David Evans of Bloomberg Markets Magazine took a closer look at the world of nonprofits and discovered something that he considered suspicious. Even though many nonprofits make millions and millions in profits, they pay no taxes.

DAVID EVANS: We took a look, for example, at the American Bureau of Shipping, which sounds like it might even be a federal agency, but it's actually a nonprofit. It's been around for 150 years. And during the seven years we looked at them, through 2010, they've earned $600 million in profits. They paid their CEO more than $20 million over the seven-year period that we looked at, and they don't resemble in many ways what you expect when you think about a nonprofit.

INSKEEP: So let me make sure that I understand what's happening here. Because, of course, there have always been nonprofits in this country. Charities have been nonprofits. Religious institutions have been operated as nonprofits. Hospitals, some of them are nonprofits. Media companies can be, NPR - just as a matter of full disclosure - is a nonprofit organization. Local public radio stations and television stations are. But you're saying that this is spreading into other kinds of business, or it has spread into other kinds of business?

EVANS: Yeah. And typically, a nonprofit hospital, for example, is going to be spending their profits quote/unquote "on providing services to the community." Here, the remarkable thing that we found was, in the case of the American Bureau of Shipping, they'd made $600 million in profits and rather than turning that back into either reducing their charges or spending most of that money on research or donations, they're doing things like sending $60 million in one year to a hedge fund in the Cayman Islands.

INSKEEP: So when you called the American Bureau of Shipping and asked them about their nonprofit status what did they say?

EVANS: Well, they point out that they're not doing anything that violates the law, although they did remarkably tell me that most countries where they operate around the world are not nearly as generous to them as the United States tax code is. They just were forced to pay $20 million in back taxes by China. They lost a case in South Africa, where they were found to be a for-profit company having to pay taxes. They paid taxes in England and across the European Union. The one big place where they don't have to pay taxes is the United States.

INSKEEP: So you said that they are treated more generously under U.S. law. Had there been any discussions within these institutions of changing their status?

EVANS: Interestingly, the Professional Baseball Association had been a nonprofit, it became a for-profit.

INSKEEP: Let's remind people, this is Major League Baseball we're talking about here.

EVANS: Right.

INSKEEP: The teams have always been for-profit, but the overarching institution was nonprofit for while, you're saying.

EVANS: Right. Major League Baseball had been nonprofit. They converted to for-profit. However, the National Football League, the National Hockey Association, they're still nonprofits.

INSKEEP: The National Football League, which negotiates multimillion dollar television contracts, there are nonprofit?

EVANS: Yeah. The same guys that pay 11-plus million dollars to their commissioner, they're a nonprofit.

INSKEEP: So who is losing here?

EVANS: Well, obviously, the United States is facing a giant budget crunch. And the issue raised by Dean Zerbe, who used to be tax counsel for the Senate Finance Committee is, why are these companies that walk, talk and quack like a taxpaying business being allowed to not pay taxes? The Treasury could collect tens of billions of dollars each year in taxes from nonprofits that are basically acting like for-profit companies.

INSKEEP: David Evans is a senior writer for Bloomberg Markets Magazine.

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