Tax-Exempt Firm Gets $600 Million Profit Flying First Class

http://www.bloomberg.com/news/2012-11-14/tax-exempt-firm-gets-600-million-profit-flying-first-class.html


The U.S. Internal Revenue Service requires annual filings by all nonprofits, while allowing trade associations to self-declare their tax-exempt status. The porous rules allow a ship inspection company to make hundreds of millions of dollars and reward its executives with lavish pay and travel perks.

Since 1862, an obscure company called American Bureau of Shipping has been approving oceangoing vessels as seaworthy. The Houston-based firm reported $3.17 billion in revenue and just less than $600 million in profits from ship inspections from 2004 to 2010 and paid no U.S. income taxes on those earnings.

The Internal Revenue Service hasn’t had any complaints. That’s because the company has been registered as a nonprofit for 150 years, Bloomberg Markets magazine reports in its December issue.

ABS routinely inspects independently owned ships on behalf of the U.S. Coast Guard, and one of its customers is the U.S. Navy. The company employs 3,028 people in 70 countries. ABS paid Robert Somerville, then its chief executive officer, $21.7 million from 2004 to 2010.

ABS shows how an organization that isn’t a charity, a school, a religious institution, a hospital or any other kind of body that commonly has nonprofit status can earn millions of dollars and legally avoid paying U.S. taxes.