Not-for-Profit and for-Profit Organization: Regulations

Not-for-profit organizations such as the churches have been granted no-profit status by the IRS (Internal Revenue Service), while others have the profit status. Under the non-profit status, organizations, among them being the healthcare organizations, cannot participate in some of the functions and/or activities because they are restricted by the IRS. On the other side, for-profit organizations are free to participate in a range of activities because they are not restricted. The regulation therefore has impacted on charitable organizations that can sponsor healthcare facilities or fund them. Participation of politics on a partisan perspective is not allowed for not-for-profit organizations. State law in the United States has had an impact on the status of organization, as regarding their profitability. The non-profit status granted to the company makes it qualify for tax exemption to some degree, and to acquire such status, there are regulations that must be adhered to. There has been a shift towards investing in not-for-profit organizations in the recent past, with the possibility of excellence of these organizations lying on the economic viability rather than being determined by the investor (Juckett, 2009). Organizations can be exempt from the federal income taxation if they meet certain requirements by the Internal Revenue Service. The Internal Revenue Service establishes guidelines that are supposed to be followed and may be used to formulate company policy during its formation. Companies can also apply for exception from the regulation if they follow these guidelines. There are three requirements established that make an unrelated business liable of being taxed. These include the activity being a trade or business, being regularly carried and being not substantially related. Trades include those services and goods which generate income, but also refer to the activities such as producing and distributing goods (IRS, 2009).

Non-profit organizations which perform the function of being a charitable organization, scientific, educational among others shall be exempt from taxation. There are requirements that those organizations that perform the purpose of being recreational, educational, and charitable, will be exempt from taxation. This is even if the organization is required for profit purposes. In addition, these organizations are limited to membership for certain municipalities (Walker, n.d.). According to the aforementioned author, the legal provision exempts from taxation, all clubs meant for re creation and pleasure. The IRS requires exemption of taxes for every boards of trade, real-estate boards, chambers of commerce and business leagues.

Most of the healthcare institutions in the United States are not-for-profit entities. There have been reported mismanagement and financial difficulties within these organizations (Poses, 2009). The major difference between not-for-profit and for-profit organization is that the former will use its surplus funds to pursue its goal while the latter will distribute it to the shareholders. The major funder for the not-for-profit organization is either the government or a private organization. The profits are required to be maintained within the organization according to the IRS guidelines. The profits are employed for building on future plans, expansion and self-preservation. Stakeholders and individuals do not benefit from the profits earned from the not-for-profit organizations (IRS, 2009). In contrast, the for-profit organizations are free to expand its functions using the profit gained. The shareholders or the owners will be expected to directly benefit from the earned profits. Some not-for-profit organizations have employed their profits to pay for their middle-level managers and workers, while others utilize unpaid volunteers.


Juckett, A. (2009). IRS revenue ruling 2009-02-Permitted disparity in employer-provided contributions or benefit plans. Web.

IRS. (2009). Trade or business defined. Web.

IRS. (2009). Tax exempt and government entities exempt organizations. Web.

Poses, R. (2009). IRS Changes Form 990 to Make Not-for-Profit Organizations More Transparent and Accountable. Web.

Walker, J. (n.d.). Sec.501. Exemption from tax on corporations, certain trusts, etc. 2010. Web. 

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