Taxexemption is a fiscal exemption which lessens taxable earnings, or grants absolutefreedom from the obligation of paying taxes. Tax exempt status can have theinfluence of complete relief from taxation, reduced tax rates, or tax beinglevied on only a portion of items or services.
The monetary exemption is mainlygranted (but not limited to) to non-profit and charitable organizations. In theUnited States of America, tax exemption generally implies that the benefiting non-profitorganization is exempt from federal income tax under Section 501(c)(3) of the U.SInternal Revenue Code (Internal RevenueService, 2017). That mentioned, this paper will propound comprehensively onthe rationale by governments and tax institutions for granting organizationstax-exempt status. Particulars such as the benefits and the burdens of tax-exemptstatus for hospitals will also be identified. Toqualify for 501(c)(3) tax-exempt benefits, a nonprofit and charitableorganization must meet the following conditions set by Congress:· The beneficiary must beorganized and conducted exclusively for religious, educational, scientific, orother charitable purposes.· Net income may not bedirected to the benefit of any private individual or shareholder.· No substantial part ofits business may be attempting to influence law formulation or enactment.
· The charity may not engagein political campaigns.· The organization’spurposes and activities may not be illegal or violate fundamental public policy.(IRS, 2017).Themain reason for governments giving authorization for tax exempt status to thesecharitable organizations is to relieve itself of the load of providing theservices to her citizens. One main example of a clear beneficiary of taxexemption is hospitals and healthcare centers. The government accordshealthcare institutions tax-exempt status as a trade-off for the healthcare establishmentproviding health services to those citizens that cannot meet the expense andwould otherwise depend on the government for their health care services.
The organizationsare thus to a certain degree supported by the government, and by extensiontax-payers – and therefore, the citizenry should expect to gain benefits inreturn. Another rationale for empowering hospitals with tax exempt benefits isto recompense the organization for providing healthcare to the needy citizenswithout directly charging them. Other large non-profit andcharitable organizations, that are benefiting from tax exempts, are those thatwork out financial engagements to the cities where they are located to help payfor municipal services like sewerage, schooling, fire and security.
Consideringthat these establishments offer services to the citizens on behalf of thegovernment, they also benefit directly from federal income tax exemption underSection 501(c)(3) of the U.S Internal Revenue Code (IRS, 2017). Hospitals sit at the helm of themain beneficiaries of tax exemption, considering their big role in offeringhealthcare services as a public charitable organization (Grants Northwest, 2018). The benefits of tax-exempt status forhospitals includes the practice serving as a means of encouraging the developmentof more charity in healthcare, offering timely and quality services to thepeople, owing to the existence of contractual agreement with the government.Nonprofit hospitals benefiting from tax exemption are also more efficient, asjuxtaposed with their for-profit counterparts, owing to the organizationalarrangement.
Another advantage is that donations from individuals and foundationsare deductible from the donor’s federal and state income taxes as charitablecontributions, with fewer restrictions than donations to private foundations. (IRS, 2017). The tax exemption does not alwaysbring good yields to the beneficiaries, as it has some burdens too. Nonprofit hospitalslack access to equity capital as they are not legally allowed to issue ownership shares that wouldpotentially give their holders a right to share in net income and the runningof the hospital. They also suffer from inconsistency of charitable exemptionsand deductions; thus their operations are rendered unsteady. In conclusion, the tax exemption is herebyproven to be a subsidy for good works to the citizenry, and should not beapproached simplistically by either the policy makers or the nonprofitfoundations.
Viewed from the approach of the good generated to the country, itis a positive outcome of capital formulation in the nonprofit sector, and requiressound and rationalized policy framework to ensure continued provision of basicservices such as health care, education, research, and aid to the poor-that charitablefoundations often provide.