You’ve explored a lot of factors that make accounting for social enterprises difficult under the tax system. You’ve looked at risks to a tax-exempt status, limitations on private foundation investments, structures used to separate and control activities for UBIT and other purposes, designs for alternative entities and financing arrangements with uncertain tax consequences, etc. A significant portion of the difficultly in this area arises from the fact that organizations are more frequently crossing the boundary between the taxable for-profit portion of the tax system and the tax-exempt nonprofit portion of the tax system. When the tax rules were written, no one envisioned that these crossings would happen so frequently (if at all).
Explain, in no more than 2 typed pages, your responses to the following questions: Is all of this complexity worthwhile? Are organizations defeating the intention of the rules by using complex structures and hybrids anyway (e.g., who wants to tell the public that we let tax-exempt organizations (which are asking the public for donations) run businesses through for-profit subsidiaries)? Should we eliminate every organization’s tax-exempt status in order to simplify the tax system? Should we eliminate all taxes on business income and effectively make every organization exempt from tax? Should we introduce new tax rules (if so, what type of rules) to deal with the boundary crossings directly? Should we prohibit all boundary crossings?
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