Question

Healthcare Financing

You are a tax attorney and consultant to Doctor's Hospital, a for-profit, physician-owned hospital. You are scheduled to give a presentation to the board regarding the advantages related to converting the hospital to not-for-profit tax status.
• What are your arguments?
• What are the board's likely arguments to remain for-profit?

Answer 1

Ans:- If I am the tax attorney and consultant to Doctors Hospital, a for-profit, Physician-owned hospital and if I have to give a presentation to the board members regarding the advantages of converting the hospital to non-profit status, then I would present the following arguments in front of the board members regarding the advantages of non-profit status.

(1)Tax-exemption status: Non-profit organization can get or apply for both the tax-exemption status i.e federal and state taxes. It is easier for them to get IRS approval than other profit organization.

(2)Access to public or private fund: For a non-profit organization it much easier to get operating capital by receiving through public and private funds.

(3) Tax-deductible donation or gifts: Non-profit organizations that qualify for 501(c)(3) get the individual donations which are tax-deductible.

(4) It is also possible that the non-profit organization may be exempted from paying property taxes but it varies from state to state.

These are the possible arguments I will present before the board members.

The board members likely arguments to remain for-profit organizations can be the following.

(1) After hospital is converted into the non-profit organization it may not be owned by the board members or the founders first it belongs to the public.

(2) After the tax-exemption, the organization will only be able to perform limited functions as per the norms and if they perform certain functions that are beyond their limit or which are not mentioned in the law then they will have to pay taxes.

(3).If the Hospital is converted to a non-profit organization then may not be able to earn hefty capital which they were earning before that and it will not be helpful if they try to expand their facilities.

(4) After they are converted to non-profit they will be accountable to the public first and then the shareholders and in that case, it will increase the pressure on the board members because of the scrutiny they may receive by masses if anything goes wrong.