How Do Federal Tax Policies Affect Nonprofit Organizations? Essay

How Do Federal Tax Policies Affect Nonprofit Organizations? Essay

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Federal tax policies have significant effect or impact on the shape and the role of nonprofit sector. Government tax policies simultaneously affect the level of nonprofit resources because government programs are the important source of nonprofit revenue in the recent times, and the tax policies significantly influence citizen propensities to make charitable contributions. Significant policy change has been observed during the past quarter century but the impact of these changes on nonprofit organizations has been overlooked. As nonprofit organizations require resources to play various roles in civil society like independent, private suppliers of goods and services, agents of the government in delivering services aimed at meeting social needs, and contributors to political life and discourse in a democracy. To conserve these resources, nonprofit organizations have to rely on a variety of special tax rules. Federal spending decisions affect both demand and supply of services of nonprofit organizations. For example as federal food stamp spending declines more needy individuals may turn to nonprofit soup kitchens for support. Thus we can see some indirect effects of Federal budget policy on nonprofit sector. As the federal government finances nonprofit services, the same budget cut that increase the need for nonprofit services, on the other hand decrease the ability of these organizations to meet this need. So there are direct effects of federal budget decisions on nonprofit organizations.


The federal government relies primarily on personal and corporate income taxes and payroll taxes. The range of enterprises that falls under the nonprofit organizations like mutual, donative, and commercial enterprises, not all among them qualify...


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...fit surplus were taxable, nonprofits might react by reducing their taxable income in different ways like by lowering fees charged for services provided or increasing staff salaries.

Moreover, the income tax exemption policy can make nonprofit organization more commercial, but the mechanism through which this happens is a subtle one. The Internal Revenue Service issues many odd rules from time to time. The nonprofit organizations appears to have sought out perfectly legal ways of shifting their costs from tax-exempt activities to taxable activities to reduce, if not eliminate, tax liability. However, in some cases the combination of federal tax policies inadvertently solves many problems. Also, on the other hand in some cases the government tax and budget policies increased considerable pressure on the nonprofit organizations to respond to social and economic needs.

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