ACC610 Week 4 Discussion 2 Tax Implications for Profit-Making Entities

Tax-exempt organizations are governed by Section 501(c)(3) of the Internal Revenue Code. The Internal Revenue Service cites the following categories as examples of exempted purposes: philanthropic, religious, educational, literary, and research for public safety objectives. This institution would be exempt from paying taxes because of its status. Compute, Inc. is seen as an organization that is operated for financial gain. Keeping this in mind, the hospital has to take the necessary safeguards to ensure that it does not incur any tax obligations connected to Compute, Inc. and so loses the privilege of being exempt from paying taxes.

If Compute, Inc. is determined to be a subsidiary of the hospital, then any money that the hospital receives from Compute, Inc. will be subject to taxation. Because Compute, Inc. will then operate independently from the institution as its own business, this solution is the one that will work best for the hospital. The tax-exempt status may change if the hospital acts as an umbrella organization for Compute, Inc. It would include gaining financial benefits from a company not connected to the other. As a result, the institution will pay taxes on revenue from unrelated businesses (UBIT).

References

Hoffman, W. H., Raabe, W. A., Smith, J. E., Maloney, D. M., & Young, J. C. (2016). Southwestern federal taxation 2016: Corporations, partnerships, estates and trusts (39th ed.). Retrieved from https://vitalsource.com