Taxation of a Not-for-Profit Organization

Not-for-profit organizations or charitable organizations can be exempted from taxation based on several requirements. For a charitable organization to request for tax exemption, the organization must be registered in the state where the tax exemption or preferred status is sought. Federal tax exemptions are governed by the Internal Revenue Code and by courts of law through interpretation of statutes and regulations.

Not-for-profit organizations are exempted from taxation since their activities are for helping ordinary citizens in the public (Showalter, 2004). A not-for-profit organization can be tax exempt if it is organized, it operates effectively for the purposes of religion and educational, charitable or scientific purposes. Under the laws, a not-for-profit organization’s activities must not benefit any individual or shareholders through its proceeds.

Another requirement for tax exemption depends on the nature of operations that a not-for-profit organization engages in. For instance, some of the not-for-profit organizations like football clubs or churches exist for social benefit but they might not obtain tax exemption. Federal laws also require that not-for-profit organizations to be offering pro-bono services; in instances like acute emergency hospitals, the law requires for such hospitals to offer emergency services without demanding for payment.

Federal laws in addition entails that a not-for-profit organization should not engage in lobbying or influencing legislation in the awarding of tax exemptions (Showalter, 2004). In the case of not-for-profit organizations hospitals, laws require them to benefit the community and not to discriminate any patients from accessing help from these organizations.Hospitals should also as to the extent they deal with their medical staff be obligated to review physicians’ medical privileges carefully for them not to lose their tax exempt status.


Showalter, J. (2004). The Law of Healthcare Administration, Fifth Edition. San Francisco, CA: John Wiley & Sons.