ABSTRACT

Following a sketch of the most prominent rationales for favorable tax treatment of nonprofits, this entry describes the main features of U.S. tax law with special attention to the federal income tax, state sales taxes, and local property taxes. Discussion of the income tax reviews eligibility requirements for tax exemption and deductibility of voluntary contributions, permissible and impermissible activities of tax-exempt nonprofits, the different regulatory regimes of public charities and private foundations, as well as economic research on the tax efficiency of deductibility of voluntary contributions to public charities. The property tax discussion reviews the theory of property tax exemption and patterns found in the practices of various states. It includes a brief discussion of payments in lieu of taxes.