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The for-profit non-profit GAAP scandal

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for-profit vs. non-profit accounting

Remember all those conservative non-profit tax audits by the IRS? Just ever so neatly swept under the rug by the mainstream media. The flow of money in an accounting period (month, quarter, year, usually) is most often describes as follows under US GAAP:

for-profit:
    Revenues - Expenses = Income (Loss)
non-profit:
    Income - Expenses = Surplus (Deficit)
government:
    Revenues - Expenses = Surplus (Deficit)

There is always some kerfuffle about the qualification of churches and charities as a "501(c)(3)" non-profit organization in the United States. The critical invariant in all three flow-of-money accounting styles is the Expenses, and whether or not these are legitimate to write off.

Non-profit income is expected to come from fundraising, which is not taxable as such. Non-profit endowment funds or the like, which are invested in for-profit businesses, are taxed in some way or another at that for-profit level before they come onto the books of the non-profit. Gifts to non-profits are sometimes tax-deductible to the donor, which is really the "big deal" to a non-profit in the first place.

Such gifts (as received) are directly considered non-taxable "income" to a non-profit, and expenses are considered a "choice" of what the organization wishes to spend its money on to best meet its goals, which ought to be outlined in a formal mission statement.

The goal of a for-profit business, on the other hand, is assumed to be to maximize net income, consistent with prudent business practice, after expenses are deducted. Expenses on the for-profit books are seen as a "necessity" rather than a choice, because unnecessary spending conflicts with the goal of maximizing net income, but in practice there is quite a bit of leeway and management justification for donations to non-profits and other "expenses" that may not be immediate "hard necessities" to the core business, but "soft money" spent networking and building community relationships, inevitably necessary for human resources, hiring, purchasing, and sales.

McCain's office urged IRS to use audits as weapons to destroy political advocacy groups - UPDATED

This post is mainly an update on the nuts and bolts of the flow of political money, but in reality, this is is how the Republican Establishment killed off the Tea Party.

The original (modern-day) Tea Party is no doubt what put Trump in office, but once again, the Establishment is regaining control of the House and Senate by financial accounting chicanery, while the goals of American independence and individuality are beaten back by a brutal off-the-books federal backlash.

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