Question

Background or Scenario:

Sisters Charity Hospital (SCH) is located in a diverse and highly-populated area. The patients are disproportionately lower-income, many eligible for state public aid and Medicaid healthcare insurance. In addition to this population, the hospital serves a high number of poor and elderly patients, many of whom are covered under the Medicare program, and some of those who also have Medicaid insurance, being dually eligible for both government health insurance programs.

Draw upon Chapters Four (4) and Eight (8) of your textbook to review Medicare and Medicaid coverage and payment information. These readings will help prepare you to answer the questions that follow.

Prompt:

SCH is a tax-exempt, charitable organization formed under section 501 (c) (3) of the Internal Revenue Code. 1. Explain the significance of 501 (c) (3) status for the hospital. Weigh the advantages and disadvantages of being a non-profit, tax-exempt organization given the context of the scenario.

Answer 1

Section 501(c)(3) is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations, specifically those that are considered public charities, private foundations or private operating foundations. It is regulated and administered by the US Department of Treasury through the Internal Revenue Service. SCH experience the preivilage of being a tax exempt,charitable organization under this section 501 (c) (3) of internal revenue code.

Advantages of being a non profitable ,tax exempt organisation

• One of the main advantage of Section 501(c)(3) organizations as compared with other tax exempt entities is the tax deductibility of donations. 26 U.S.C. § 170, provides a deduction, for federal income tax purposes, for donors who make charitable contributions to most types of 501(c)(3) organizations.
• Another advantage is that like federal law, most states allow for deductibility for state income tax purposes.
• Many states allow 501(c)(3) organizations to be exempt from sales tax on purchases, as well as exemption from property taxes. Special nonprofit, bulk rate postage discounts are available from the Post Office to qualifying organizations.

Disadvantages

• 501(c)(3) organizations are highly regulated entities.
• Strict rules apply to both the activities and the governance of these organizations.
• No part of the activities or the net earnings can unfairly benefit any director, officer, or any private individual.
• In addition, all assets are permanently dedicated to a charitable purpose. In the event that a 501(c)(3) organization must cease operations, all assets remaining after debts are paid must be distributed for a charitable purpose.
• Lobbying, propaganda or other legislative activity must be kept relatively insubstantial.
• Intervention in political campaigns or the endorsement/anti-endorsement of candidates for public office is strictly prohibited.