Year of Publication

2013

College

Martin School of Public Policy and Administration

Executive Summary

Nonprofits today are losing their traditional funding sources for a variety of reasons and are turning to nontraditional ways of finding resources to make sure their organization is able to sustain itself while still meeting its mission. One common non-traditional approach is engaging in unrelated business income activities. Since these activities are not related to a nonprofit’s mission they are subject to taxation. Some question whether these activities help a nonprofit organization meet its mission.

A nonprofit seen not fulfilling its mission can be detrimental to that organization especially where its donors are concerned. If a donor does not support an organization’s practices to diversify its revenue sources they might stop donating. This study will analyze whether a nonprofit’s unrelated business income is negatively associated with the donations it receives.

An introduction of the problem is presented, followed by a literature review of the topics surrounding this analysis. These topics include social entrepreneurship, the IRS Form 990 and previous studies conducted on the unrelated business income tax. From this review I develop my research design for this analysis. The design and model are focused on a sample of nonprofits obtained from IRS Form 990 data in 2007. My dependent variable is public direct support and my main explanatory variable is unrelated business income. I control for seven other variables that have been shown in previous studies to have a significant relationship with direct public support.

The first regression analysis of these variables did not display significant results regarding unrelated business incomes negative association with direct public support. The second regression analysis, in which the unrelated business income variable is squared, did yield significant results. From these results it can be surmised that reporting unrelated business income may not have a significant negative relationship with direct public support but increasing amounts of this type of income is associated with a decreasing amount of direct public support. This analysis ends with a discussion of the limitations and recommendations for further research on this subject.

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