Internal Revenue Service Regulations Governing Profit Status for Organizations
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Internal Revenue Service Regulations Governing Profit Status for Organizations
Internal Revenue Service is an agency of the United States government tasked with administering the revenue code and tax collection. Its organization structure is customer oriented with proper management structures for the tax system and ensuring compliance with the law through collaboration with the law enforcement agency. The body handles the review of organizations for tax exemption conducting income reviews and audits that can be on site basis or through correspondence (Irs.gov, 2015). It ensures organizations comply with the set regulations and conduct checks for those who default.
The US revenue code in section 501 c-3 allows for an exemption for those nonprofit organizations considered public charities and those foundations operating privately. The state treasury department handles administering the law through the IRS and applies to charities, trusts, corporations and unincorporated associations (Irs.gov, 2015). These organizations have distinct, unique provisions under the code, and they are enjoying tax exemption to an extent in their earnings. There are legal requirements that the Affordable care Act of 2010 introduced by the government for organizations to meet for them to receive the set tax exemption. The Act describes all the organizations that qualify for the exemption and the requirements they need to satisfy for recognition for the exemption under the law.
To implement the Affordable care Act effectively, the Internal Revenue Service had come up with guidelines for hospital organizations to comply with the Act (Cahoon, Dertinger, Hodges, Impink, Knight, Nguyen, & Scott, 2006). In a clear way, health organizations were required to make declaration about their policies and activities and commit to minimize healthcare burden as much as possible. There are the new requirements that hospitals have to comply with and provide their compliance report to the IRS as required by the law established.
The Differences Between For Profit and Not For Profit Hospitals
The tax law stipulates tax exemptions for nonprofit organizations and set for the procedures for compliance and identification of such groups. The IRS recognizes a public charity as not for profit as its principal revenues ensues from the government and the public (Cahoon et al., 2006). Therefore, this provides first distinction for the hospitals on their source of funds for their classification, since a not for profit are required to be receiving a portion of their donations from the public base (Gandhi, 2012). The support from the public can be in the form of tax deductibles, and unrelated individuals must govern the organizations that receive such funding, providing another clear distinction between for-profit and not for profit hospitals.
For-profit hospitals can be managed by those related on a private basis with its revenue and profits going to private individuals unlike for the not for profit. People would often recognize not for profit organizations to be those with most active programs focused on the people and not on individual benefits (Gandhi, 2012). Unlike public organizations, for-profit organizations have not active programs with no active donor funding (Cahoon et al., 2006). So majorly the differences that exist between not for profit and profit hospital organizations is the manner of their management, funds, and the focus of their programs.
Organizations that seek compliance with the set code are configured to benefit from tax exemptions and receive tax deductibles in the form of charitable contribution since the donors have the assurance that their contributions will help the right people. This practice encourages more donations from individuals and corporation since their contributions get an exemption from taxation. Only those not for profit organizations operated and organized for the purposes set in exemption code get to benefit from the provision, and they may fall in a range of institutions run by different groups for public benefit (Cahoon et al., 2006).
Difference in Quality of Care
The difference in the quality of care can be from the perception of the management and operation of institutions (Irs.gov, 2015). The argument that for-profit health organizations do not offer the quality of care may affirm the fact that profitability affects the quality of attention and specialization. For-Profit organization would focus on services that would generate more income and operate their care function to raise their revenue income and are always on the move on changes in service profitability (Gandhi, 2012). This aspect is arguably from different perspective as arguments continue about whether for-profit hospitals holds much importance as far as the quality of patient care is concerned.
For-profit hospitals have the ability to sacrifice patient care quality for their benefit, a case that is not an experience in other facilities. In a desire to maximize profit, a care institution may intend to save on service costs charged for patients simply to get the service for more patients. There is no perfect way to measure quality, but the patients’ satisfaction and responsiveness are important and can be a factor on this basis (Gandhi, 2012). The patient experience and the quality of the process are necessary measures, and as not for profit hospitals actually focus on the aspects to encourage people to seek medical care, for profit may concentrate on this to attract more clients.
Taking into account the ailments of the patients, the argument bases on the mortality rates (Gandhi, 2012) to determine in which institutions a person is more likely to die within thirty days of hospitalization to determine responsiveness. In fact, not for profit and government facilities will work as much as possible to reduce readmission rates to control hospital occupancy, yet again the aspect can be a basis for benefiting from profit institutions. The differences, therefore, are because of the basis of focus and the operation of the hospitals.
Challenges that Not-for-Profit Hospitals in the U.S. are facing
The major challenges that a not for profit hospital would face are the ethical, compliance and funding issues. For the nonprofits operating in the USA, they have to reconsider their market position at each time to save from cuts in reimbursement since they hold no stock and, therefore, the leaders have to explore all the possible revenue sources available to fund their programs. Not-for-profit organizations have to meet their goals and maintain their status even in the light of stringent rules and codes set under the law. The institutions have to maintain higher level of transparency through filing returns to the Internal Revenue Service has and seek certifications and letters at different times for their status (Cahoon et al., 2006).
These facilities may have to explore funding opportunities for more programs, and being restricted to the public for a portion of their financing, finding balance of the same for the sake of compliance (Irs.gov,. 2015) can be daunting. With the changing focus of the donors, not for profits may find it difficult shifting their services to attract the donor interest to press more funding on the programs of the institution. The systems must operate on a for-profit mind while acting as a non-profit to ensure progression that most donors, more so the entrepreneurial would want to see in transforming care delivery for the people. The hospitals have to maintain an outstanding performance and offer a certain level of charity care to secure their positions.