The Kiplinger Tax Letter reports that certain nonprofit groups have been facing heightened scrutiny from Federal, State and local levels of government. The nonprofit groups that are having the problems are particularly those exempt organizations that derive a majority of their funding from fee-for-service operations, predominantly those that are competing with other for-profit businesses and charging similar feesThe claim by the government is that the charities don't live up to the intended purposes for which they received their 501 (c)(3) status.
A number of charities are reported to have been denied property tax exemptions from States and localities including the State of Minnesota, where the State Supreme Court ruled in March that one of the county tax assessors acted properly in denying a nonprofit day care center exemption on property taxes. The court noted that the nonprofit was charging the same rate to all families and not providing a “charitable service” to local families
This situation has been developing here in Washington where there have been discussions related to the tax exempt status of hospitals, universities and adult retirement centers that all compete with for-profit organizations. It’s a stretch of the imagine to think that some of our large universities like Harvard and Stanford and the endowment funds of places like Notre Dame may be in tax-exempt-jeopardy in the near future if this trend continues. Legislation has been drafted but never has left committee, which requires tax-exempt hospitals to have written policies detailing their charitable provisions for poor and indigent patients. Just last year, universities were requested to use more of their endowment fund earnings to reduce tuition costs.
This will be an interesting development. Stay tuned after the November elections to see what transpires.
