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The effects of the favorable tax treatment of nonprofit commercial activities are best understood in a framework that explicitly accounts for a number of interactions. These involve differential taxation of nonprofits and for‐profits and of nonprofits’ “related” and “unrelated” activities; the preferences of nonprofit executives who may be averse to commercial activity; donors whose giving may be sensitive to nonprofit organization commercial activity; and cost‐complementarities between nonprofit core mission‐related activities and their secondary money‐raising efforts. Differential taxation encourages nonprofits to pursue otherwise avoided commercial ventures by providing excess financial returns that nonprofits can exploit because of their tax‐exempt status. Data from the 1992 Statistics of Income (SOI) public use file of Internal Revenue Service (IRS) Form‐990 returns indicate that the propensity of nonprofit organizations to undertake both tax‐exempt and taxable activities depends on their primary mission‐related output and size, the relative importance of government versus private contributions, and the size of the excess return created by differential taxation of nonprofit and for‐profit business. Additional analyses of SOI data also show that organizations that engage in taxable commercial activities are likely to allocate joint costs in ways that reduce, and in most cases eliminate, their taxable income.

Regulatory impact analyses (RIAs) weigh the benefits of regulations against the burdens they impose and are invaluable tools for informing decision makers. We offer 10 tips for nonspecialist policymakers and interested stakeholders who will be reading RIAs as consumers.1.Core problem: Determine whether the RIA identifies the core problem (compelling public need) the regulation is intended to address.2.Alternatives: Look for an objective, policy-neutral evaluation of the relative merits of reasonable alternatives.3.Baseline: Check whether the RIA presents a reasonable “counterfactual” against which benefits and costs are measured.4.Increments: Evaluate whether totals and averages obscure relevant distinctions and trade-offs.5.Uncertainty: Recognize that all estimates involve uncertainty, and ask what effect key assumptions, data, and models have on those estimates.6.Transparency: Look for transparency and objectivity of analytical inputs.7.Benefits: Examine how projected benefits relate to stated objectives.8.Costs: Understand what costs are included.9.Distribution: Consider how benefits and costs are distributed.10.Symmetrical treatment: Ensure that benefits and costs are presented symmetrically.

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